East West Bancorp Reports First Quarter 2009 Results

East West Bancorp, Inc. (Nasdaq:EWBC), parent company of East West Bank, today reported financial results for the first quarter 2009 with a net loss of $22.5 million. The net loss for the first quarter was largely a result of a $78.0 million provision for loan losses.

During the quarter, East West achieved strong deposit momentum, growing core deposits by $467.8 million, or 14% quarter over quarter, while decreasing the cost of deposits by 33 basis points to 1.81%. East West’s core profitability remains solid with total revenue of $93.7 million offset by $51.4 million in noninterest expense.

"From the onset of this prolonged economic downturn, our focus has remained on ensuring the safety and soundness of the Bank and our responsibility to customers and shareholders,” stated Dominic Ng, Chairman, President and Chief Executive Officer of East West. "Throughout 2008 we took decisive actions to do just that. We grew excess liquidity to $3.3 billion. We increased our allowance for loan losses by 101%. We raised over $500 million in capital and ended 2008 with total risk-based capital of 15.83%, more than $600 million above the ‘well capitalized’ regulatory requirement.”

"During the first quarter of 2009, we continued to take prudent and appropriate measures to ensure that our balance sheet remains strong,” continued Ng. "We actively grew core deposits by $467.8 million during the quarter and aggressively reduced credit exposures while building the allowance for loan losses to 2.42% at March 31, 2009. We believe that our strong core profitability, along with strong capital, liquidity and allowance for loan losses will serve as a foundation for strong earnings and growth when the market turns,” concluded Ng.

First Quarter 2009 Highlights

• Strong Increase in Core Deposits – Total deposits increased by $312.1 million, or 4% quarter over quarter, to a record $8.5 billion at March 31, 2009, primarily due to a $467.8 million, or 14% quarter over quarter increase in core deposits. Since September 2008, we have experienced strong deposit momentum through both our retail branch network and our commercial deposit platforms.
• Strong Decrease in Cost of Deposits - The cost of deposits decreased 33 basis points to 1.81% for the first quarter of 2009, largely due to the increase in core deposits. The cost of deposits as of the month ended March 31, 2009 was 1.59%, a 42 basis point or 21% decrease from the cost of deposits as of the month ended December 31, 2008.
• Improved Net Interest Income –Net interest income for the first quarter totaled $79.7 million, a 4% or $2.8 million increase over fourth quarter of 2008. The net interest margin for the quarter also increased to 2.74%.
• Allowance for Loan Losses Strengthened – Total allowance for loan losses increased to $195.5 million, or 2.42% of outstanding loans. We continued to increase the allowance for loan losses, recording provision for loan losses of $78.0 million and total net loan charge-offs of $59.6 million for the quarter.
• Nonperforming Assets – Nonperforming assets were $303.8 million or 2.42% of total assets, a $39.9 million or 15% increase from $263.9 million or 2.12% of total assets at December 31, 2008.
• Loan to Deposit Ratio – Throughout the course of 2008 and 2009, East West decreased the loan to deposit ratio in an effort to strengthen the balance sheet. As of March 31, 2009, the loan to deposit ratio decreased substantially to 95%, from 101% as of December 31, 2008 and 122% at December 31, 2007.
• Loan Originations – $305.6 million in loans to new and existing customers were made in the first quarter of 2009, primarily to homeowners and small and mid-sized businesses.
• Decrease in Borrowings – FHLB advances decreased $120.0 million or 9% from December 31, 2008 as we continued to pay down higher cost borrowings. Cost of funds decreased to 2.44% for the first quarter of 2009, a 33 basis point decrease from 2.77% for the fourth quarter of 2008. We intend to pay down higher cost FHLB advances for the remainder of 2009, paying down $60.0 million at 5.05% in the second quarter, $250.0 million at 5.14% in the third quarter and $200.0 million at 4.43% in the fourth quarter.

Capital Strength
(Dollars in millions)

East West has always been committed to maintaining strong capital levels and has been well capitalized throughout this economic cycle. As of the end of the first quarter, East West significantly exceeds well capitalized minimums under all regulatory guidelines.

Managing Through the Credit Cycle

The $78.0 million provision for loan losses taken during the first quarter of 2009 compared to $43.0 million in the fourth and third quarters of 2008, $85.0 million in the second quarter of 2008 and $55.0 million in the first quarter of 2008. At March 31, 2009, the allowance for loan losses increased to $195.5 million or 2.42% of outstanding loans, compared to $178.0 million or 2.16% of outstanding loans at December 31, 2008. For the first quarter of 2009, East West had net charge-offs of $59.6 million, compared to $41.5 million during the fourth quarter of 2008.

Our loan portfolio continues to be impacted by the real estate downturn and recessionary economy in California, as evidenced by the increased level of net charge-offs, nonperforming assets and delinquent loans. We believe that credit challenges will continue throughout 2009, particularly for our residential construction and land loan portfolios. Throughout the course of 2008 and the first quarter of 2009, we have actively reduced exposure to land and construction loans. We reduced outstanding loan balances on land and construction loans by $137.6 million and total commitments on construction loans by $202.0 million during the first quarter. This reduction in land and construction loans was in addition to the $1.0 billion decrease in total commitments on construction and land loans in 2008.

Total nonperforming assets as of March 31, 2009 were $303.8 million or 2.42% of total assets, compared to $263.9 million or 2.12% of total assets at December 31, 2008. The increase in nonperforming assets was largely driven by an increase in nonaccrual loans of $33.4 million. Nonperforming assets as of March 31, 2009 included nonaccrual loans totaling $248.0 million, other real estate owned totaling $38.6 million and loans modified or restructured totaling $17.2 million.

Total nonaccrual loans as of March 31, 2009 were $248.0 million, compared to $214.6 million at December 31, 2008. We believe that the collateral values for the $248.0 million nonaccrual loans are strong and have updated values totaling $344.5 million. All nonaccrual loans are recorded at the lesser of the outstanding loan balance or net realizable value.

The increase in nonaccrual loans was primarily due to one lending relationship comprised of several loans, where the borrower filed for bankruptcy towards the end of the first quarter. Although payments on substantially all of these loans were current or under 90 days delinquent, these loans were classified as nonaccrual loans as of the end of the first quarter. As of March 31, 2009, the net book value of the total loans for this lending relationship was $49.2 million and the collateral is comprised of 23 different properties, all land, residential and income producing commercial real estate located in the downtown Los Angeles region.

The quarter-to-date increase in nonaccrual commercial real estate loans was $30.5 million from $24.7 million at December 31, 2008. The lending relationship noted in the paragraph above comprised $34.8 million of the nonaccrual commercial real estate loans at March 31, 2009. Excluding these loans, nonaccrual commercial real estate loans would have decreased $4.3 million quarter-to-date. The nonaccrual commercial real estate loans as of March 31, 2009 were well collateralized, comprised of 25 loans and had an average loan balance of $2.2 million.

Deposit Summary

Total deposits as of March 31, 2009 increased to a record $8.5 billion, up $312.1 million or 4% from $8.1 billion at December 31, 2008. The increase in deposits stemmed from a strong increase in core deposits of $467.8 million or 14% quarter over quarter. Since mid-2008, we have focused on attracting new customers and growing deposits through our retail branch network and commercial deposit platforms. Along with growing core deposits, we have also focused on shifting our deposit base from higher cost time deposits to lower cost core deposits. We successfully introduced new core deposit products and substantially increased money market deposits during the quarter.

Given the growth in core deposits and shift away from time deposits, we were able to reduce our cost of deposits for the first quarter of 2009 to 1.81%, a 33 basis point decrease from the fourth quarter of 2008.

First Quarter 2009 Operating Results
(In thousands, except per share amounts)

Net Interest Income

Net interest income for the first quarter totaled $79.7 million, a 4% increase over fourth quarter of 2008. The net interest margin for the quarter totaled 2.74%, an increase from 2.72% in the prior quarter. Overall, our continuing efforts to improve the margin through growing core deposits, focusing on pricing, and increasing loan and investment security yields have proven to be successful.

The increase in the margin, which resulted from increased yields on interest earning assets combined with the decreased cost of deposits, was partially offset by the reversal of interest income on nonperforming loans. Excluding the impact of $1.9 million in reversals of interest income, the net interest margin would have been seven basis points higher, at 2.81% for the first quarter. Throughout the first quarter of 2009, we continued to drive down the cost of deposits, as shown in the table below which shows the monthly cost of deposits at March 31, 2009 and December 31, 2008:

Currently, we estimate that the net interest margin will approximate 2.85% for the second quarter of 2009.

Noninterest Income

Noninterest income for the first quarter totaled $13.8 million, compared to a loss of $863 thousand in the fourth quarter of 2008.

In the first quarter of 2009, we recorded a $200 thousand write-down of investment securities through earnings for other-than-temporary impairment (OTTI), in accordance with FSP FAS 115-2 and FAS 124-2 issued by the FASB on April 9, 2009. This new guidance requires that credit-related OTTI be recognized through earnings while noncredit-related OTTI be recognized through equity. Noncredit-related OTTI on securities of $9.7 million pre-tax was recognized through equity.

Excluding the impact of credit-related impairment write-downs on investment securities, noninterest income for the first quarter of 2009 totaled $14.0 million, an increase of $5.2 million or 59% from $8.8 million in the fourth quarter of 2008. The increase from the prior quarter was primarily due to increased gain on sale of investment securities of $2.3 million, increased loan fees of $1.5 million and increased branch fees of $546 thousand.

Noninterest Expense

Noninterest expense totaled $51.4 million for the first quarter 2009, an increase of $7.2 million from the fourth quarter of 2008. The primary driver for the increase in noninterest expense was an increase in OREO expense of $4.5 million for the first quarter of 2009, due to higher write-downs and loss on sale of OREOs. Additionally, deposit insurance premium expense increased to $3.3 million in the first quarter, in line with higher FDIC assessment rates in 2009 across the industry. We will continue to manage down base operating costs throughout 2009; however, these decreases may be offset by higher FDIC assessment and OREO costs.

Dividend Payout

East West Bank’s Board of Directors has declared second quarter dividends on the common and non-cumulative perpetual convertible preferred stock, series A. The Board reduced the common stock cash dividend from $0.02 to $0.01 per share as an additional measure of preserving capital. The common stock cash dividend is payable on or about May 26, 2009 to shareholders of record on May 18, 2009. The dividend on the non-cumulative perpetual convertible preferred stock, series A of $20.00 per depository share is payable on May 1, 2009 to shareholders of record on April 15, 2009. We will continue to review the dividend policy quarterly, in light of the current economic environment.

About East West

East West Bancorp is a publicly owned company with $12.6 billion in assets and is traded on the Nasdaq Global Select Market under the symbol "EWBC”. The Company’s wholly owned subsidiary, East West Bank, is the second largest independent commercial bank headquartered in Southern California with 71 branch locations. East West Bank serves the community with 69 branch locations across Southern and Northern California and a branch location in Houston, Texas. East West Bank has three international locations in Greater China, including a full-service branch in Hong Kong and representative offices in Beijing and Shanghai. For more information on East West Bancorp, visit the Company’s website at www.eastwestbank.com.

Forward-Looking Statements

This release may contain forward-looking statements, which are included in accordance with the "safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and accordingly, the cautionary statements contained in East West Bancorp’s Annual Report on Form 10-K for the year ended Dec. 31, 2008 (See Item I -- Business, and Item 7 -- Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations), and other filings with the Securities and Exchange Commission are incorporated herein by reference. These factors include, but are not limited to: the effect of interest rate and currency exchange fluctuations; competition in the financial services market for both deposits and loans; EWBC’s ability to efficiently incorporate acquisitions into its operations; the ability of borrowers to perform as required under the terms of their loans; effect of additional provisions for loan losses; effect of any goodwill impairment, the ability of EWBC and its subsidiaries to increase its customer base; the effect of regulatory and legislative action, including California tax legislation and an announcement by the state’s Franchise Tax Board regarding the taxation of Registered Investment Companies; and regional and general economic conditions. Actual results and performance in future periods may be materially different from any future results or performance suggested by the forward-looking statements in this release. Such forward-looking statements speak only as of the date of this release. East West expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in the Bank’s expectations of results or any change in event.