East West Bancorp Reports Fourth Quarter 2008 Earnings of $2.4 Million; Increased Capital by $306.5 Million; Declares Dividends for First Quarter 2009

East West Bancorp, Inc. (Nasdaq: EWBC), parent company of East West Bank, one of the nation’s premier community banks, today reported financial results for the fourth quarter and full year 2008. For the fourth quarter 2008, net income was $2.4 million, an increase of $33.6 million over a loss reported in third quarter. Our fourth quarter earnings include a provision for loan loss of $43.0 million and impairment write-down of securities of $9.7 million.

"2008 was a year of continuous uncertainty for the financial markets and the U.S. economy. Throughout this year of unprecedented challenges for the financial service industry, we had one objective - safeguarding our customer assets and shareholder interests,” stated Dominic Ng, Chairman, President and Chief Executive Officer of East West. "We were early to raise capital in April and again in December, which increased our risk-based capital ratio to 15.83% or over $600 million above the ‘well capitalized’ threshold at year-end. Throughout the year we have steadily increased our overall liquidity by $2.2 billion or 196%. We aggressively managed down problem loans, reducing total commitments on construction and land loans by $1.0 billion, a 31% decrease. At the same time, we increased the allowance for loan losses to $178.0 million, or 2.16% of total loans.”

Ng continued, "Our decisive actions in 2008 to significantly increase capital, liquidity, and reserve levels while minimizing credit exposures have better positioned us during this challenging economic environment. We are entering 2009 with a solid balance sheet and the confidence to prudently extend credit by attracting new customers and expanding existing customer relationships. In the fourth quarter of 2008 we originated $327 million in new loans, primarily real estate, commercial business loans to small and mid-sized businesses and single family mortgages.”

"Currently our expectations for the full year of 2009 include loan balance growth of 11%, deposit balance growth of 5% and a net interest margin of approximately 3.20%. The entire East West team is poised and ready for the new challenges and opportunities 2009 will bring,” concluded Ng.

Full Year 2008 Highlights

• Capital Strengthened – During the full year 2008, we raised a total of $506.5 million in capital. We issued $200.0 million of convertible preferred stock in April and issued $306.5 million of preferred stock in December as a participant in the Treasury’s Capital Purchase Program.
• Liquidity Strengthened - Total borrowing capacity and cash as of December 31, 2008 increased to $3.3 billion, or 27% of total assets and 41% of total deposits. As of December, 31, 2008, cash and unused borrowing facilities increased $522.6 million or 19% from September 30, 2008 and $2.2 billion or 196% from December 31, 2007.
• Loan to Deposit Ratio - In early 2008 East West announced its plan to further strengthen the balance sheet and decrease the loan to deposit ratio. During the course of the fourth quarter and the full year, the loan to deposit ratio decreased substantially to 101% as of December 31, 2008, from 110% as of September 30, 2008 and 122% at December 31, 2007.
• Loan Portfolio Strengthened – Starting in early 2008, we performed intensive reviews of our entire loan portfolio and reduced our exposures significantly for problem loans. We increased our allowance for loan losses by $89.6 million or 101% during the year. Year to date, total commitments on construction and land loans decreased by $1.0 billion. Total land loans decreased $104.7 million or 15% and total commitments on construction loans decreased $907.8 million or 36%.
• Reduction in Operating Expenses – Throughout 2008 we continued to reduce operating expenses despite rising credit cycle costs. Noninterest expense was $44.2 million for the quarter, a decrease of $4.3 million or 9% from third quarter 2008, a decrease of $11.5 million or 21% from second quarter 2008 and a decrease of $8.7 million from first quarter 2008.

Fourth Quarter Summary

• Credit Quality - Total loan delinquencies have remained relatively stable, increasing $11.3 million or 4% from September 30, 2008 and decreasing $41.7 million or 11% from June 30, 2008. Total nonperforming assets to total assets increased to 2.12% up from 1.71% at September 30, 2008. The increase in nonperforming assets from the prior quarter is a result of increases in nonaccrual loans and real estate owned assets, primarily in land and residential construction.
• Allowance for Loan Losses Strengthened - Total allowance for loan losses increased to $178.0 million, or 2.16% of outstanding loans. We continued to increase the reserve for loan losses, recording provision for loan losses of $43 million and total net loan charge-offs of $41.5 million for the quarter.
• Deposits Increased – Total deposits increased to a record $8.1 billion at year-end. In fourth quarter, we increased deposits $605.6 million or 8% over prior quarter, reflecting strong increases in time and money market deposits.

During the fourth quarter we issued $306.5 million in preferred stock through the Treasury’s Capital Purchase Program which resulted in total shareholders’ equity of $1.6 billion at December 31, 2008. Total assets as of December 31, 2008 increased to a record $12.4 billion, an increase of $701.9 million or 6% from September 30, 2008.

East West has always been committed to maintaining strong capital levels and has been very well capitalized throughout this economic cycle. As of the end of the fourth quarter, our leverage capital ratio increased to 12.36%, tier 1 capital increased to 13.85% and total risk-based capital increased to 15.83%. East West significantly exceeds well capitalized minimums under all regulatory guidelines.

Managing Through the Credit Cycle

Total nonperforming assets as of December 31, 2008 totaled $263.9 million or 2.12% of total assets, compared to $200.6 million or 1.71% of total assets at September 30, 2008. The increase in nonperforming assets was primarily due to increases in nonaccrual loans and real estate owned. Nonperforming assets as of December 31, 2008 included nonaccrual loans totaling $214.6 million, other real estate owned totaling $38.3 million and loans modified or restructured totaling $11.0 million.

Total nonaccrual loans as of December 31, 2008 were $214.6 million, compared to $177.3 million at September 30, 2008. Included in nonaccrual loans as of December 31, 2008 are loans totaling $32.5 million which were not 90 days past due as of December 31, 2008, but that we classified as nonaccrual due to concerns surrounding collateral and future collectability.

The residential construction and land portfolios continue to be impacted by the real estate downturn. Over the course of the year, we have actively reduced land and construction loans and have decreased total commitments for these assets by $1.0 billion. During the quarter, the Company sold eighteen real estate owned (REO) assets with a carrying value of $16.1 million and sold fourteen nonperforming loans with a carrying value of $32.8 million. This follows third quarter’s activity where we sold $18.4 million of REO assets and $68.0 million in nonperforming loans. The loans and REO assets sold were predominantly land and residential construction loans.

The $43.0 million provision for loan losses taken during the fourth quarter of 2008 was flat compared to third quarter and was a decrease from $85.0 million in the second quarter and $55.0 million in the first quarter. At December 31, 2008, the allowance for loan losses increased to $178.0 million or 2.16% of outstanding loans, compared to $177.2 million or 2.14% of outstanding loans at September 30, 2008. The Company’s methodology for calculating the allowance for loan losses includes factors such as historical loss trends, asset classification, collateral deficiency, delinquency, credit concentrations and overall economic conditions. Based on management's evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these reserves are adequate for losses inherent in the loan portfolio as of December 31, 2008.

For the fourth quarter of 2008, East West had net charge-offs of $41.5 million, compared to $39.7 million during the third quarter of 2008. The net charge-offs for the fourth quarter were comprised of $42.3 million in gross charge-offs and $801 thousand in recoveries. Of the total net charge-offs of $41.5 million for the fourth quarter, 63% or $26.2 million were from land and residential construction loans.

Net interest income for the fourth quarter totaled $76.9 million. The net interest margin for the quarter totaled 2.72%, compared to 3.10% in the prior quarter. The decrease in the net interest margin is largely due to the impact from the 175 basis point decrease in the fed funds rate during the quarter to a target rate of 0 to 0.25%.

Excluding the non-cash charge for impairment of investment securities, noninterest income for the fourth quarter totaled $8.8 million, down from $10.0 million in the third quarter of 2008 and $14.0 million from the prior year period. This decrease in the fourth quarter as compared to the prior quarter and prior year was primarily due to lower gains on sales of investment securities and loans and impairment of mortgage servicing rights and other assets in the fourth quarter of 2008.

During the fourth quarter of 2008, we continued to carefully control all expenditures and reduce noninterest expense. Noninterest expense totaled $44.2 million for the fourth quarter 2008, a decrease of $4.3 million or 9% from the third quarter and decrease of $11.5 million or 21% from second quarter. The decline in noninterest expense reflects lower compensation and employee benefits due to reduced staffing levels and total compensation related costs. The efficiency ratio was 47.5% for the fourth quarter, compared to 46.4% in third quarter of 2008.

The tax benefit during the quarter was $13.6 million, $2.4 million greater than the net loss before income taxes. This was largely a result of a $5.7 million tax benefit in the fourth quarter resulting from other than temporary impairment charges on Fannie Mae and Freddie Mac preferred stock in the third quarter. This benefit was due to the change in law in October 2008 allowing banks to recognize other than temporary impairment charges in Fannie Mae and Freddie Mac preferred stock as ordinary losses.

Investment Securities

During the fourth quarter, we recorded other than temporary impairment on investment securities of $9.7 million related to four pooled trust preferred securities. Year to date, total impairment on the pooled trust preferred securities totaled $17.8 million. The fair values of these securities continue to be negatively impacted by the illiquidity in the market for these securities. The Company has the ability and intent to hold these securities until all principal and interest is fully recovered.

Deposit Summary

Total deposits as of December 31, 2008 increased to $8.1 billion, up $605.6 million or 8% from $7.5 billion at September 30, 2008. Quarter over quarter, core deposits increased $191.3 million or 6% and time deposits increased $414.3 million or 10%. With the instability in the overall banking environment, we promoted fully insured deposit programs to our customers during the third and fourth quarters. These efforts resulted in time deposits growing at a higher pace than core deposits during the fourth quarter of 2008. The average cost of deposits for the fourth quarter of 2008 was 2.14%, a 3 basis point decrease from the third quarter of 2008.

Dividend Payout

East West Bank’s Board of Directors has declared first quarter dividends on the common and non-cumulative perpetual convertible preferred stock, series A. While the Bank’s capital position is very strong, the Board reduced the common stock dividend to $0.02 per share for the first quarter of 2009 in light of the challenging financial market conditions and what it believes is a responsibility to preserve capital. The common stock cash dividend of $0.02 per share is payable on or about February 24, 2009 to shareholders of record on February 10, 2009. The dividend on the non-cumulative perpetual convertible preferred stock, series A of $20.00 per depository share is payable on February 1, 2009 to shareholders of record on January 15, 2009.

About East West

East West Bancorp is a publicly owned company with $12.4 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, 2007 (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.