UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 000-24939

EAST WEST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-4703316
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

135 N. Los Robles Ave, 7th Floor, Pasadena, California 91101

(Address of principal executive offices) (Zip Code)

(626) 768-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 91,642,796 shares of common stock as of July 31, 2009.

Table of Contents

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		4

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4-7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8-40

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40-79

Item 3.	Quantitative and Qualitative Disclosures of Market Risks	79

Item 4.	Controls and Procedures	80-82

PART II - OTHER INFORMATION		81

Item 1.	Legal Proceedings	81

Item 1A.	Risk Factors	81-83

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83

Item 3.	Defaults Upon Senior Securities	83

Item 4.	Submission of Matters to a Vote of Security Holders	83-84

Item 5.	Other Information	84

Item 6.	Exhibits	84

SIGNATURE		85

Forward-Looking Statements

Certain matters discussed in this Quarterly Report may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the environment in which the Company operates and projections of future performance including future earnings and financial condition. The Company’s actual results, performance, or achievements may differ significantly from the results, performance, or achievements expected or implied in such forward-looking statements. Such risk and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from:

· changes in our borrowers’ performance on loans;

· changes in the commercial and consumer real estate markets;

· changes in our costs of operation, compliance and expansion;

· changes in the economy, including inflation;

· changes in government interest rate policies;

· changes in laws or the regulatory environment;

· changes in critical accounting policies and judgments;

· changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies;

· changes in the equity and debt securities markets;

· changes in competitive pressures on financial institutions;

· effect of additional provision for loan losses;

· effect of any goodwill impairment;

· fluctuations of our stock price;

· success and timing of our business strategies;

· impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity;

· changes in our ability to receive dividends from our subsidiaries; and

· political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions.

For a more detailed discussion of some of the factors that might cause such differences, see the Company’s 2008 Form 10-K under the heading “ITEM 1A. RISK FACTORS.” The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30,			December 31,
	2009			2008
ASSETS
Cash and cash equivalents	$	573,114		$	878,853
Short-term investments	554,293			228,441
Securities purchased under resale agreements	75,000			50,000
Investment securities held-to-maturity, at amortized cost (with fair value of $794,463 at June 30, 2009 and $123,105 at December 31, 2008)	794,840			122,317
Investment securities available-for-sale, at fair value (with amortized cost of $1,450,656 at June 30, 2009 and $2,189,570 at December 31, 2008)	1,381,810			2,040,194
Loans receivable, net of allowance for loan losses of $223,700 at June 30, 2009 and $178,027 at December 31, 2008	8,289,229			8,069,377
Investment in Federal Home Loan Bank stock, at cost	86,729			86,729
Investment in Federal Reserve Bank stock, at cost	36,785			27,589
Other real estate owned, net	27,188			38,302
Investment in affordable housing partnerships	48,127			48,141
Premises and equipment, net	56,775			60,184
Due from customers on acceptances	7,904			5,538
Premiums on deposits acquired, net	18,973			21,190
Goodwill	337,438			337,438
Cash surrender value of life insurance policies	96,592			94,745
Deferred tax assets	163,105			184,588
Accrued interest receivable and other assets	171,613			129,190
TOTAL	$	12,719,515		$	12,422,816

LIABILITIES AND STOCKHOLDERS’ EQUITY
Customer deposit accounts:
Noninterest-bearing	$	1,326,952		$	1,292,997
Interest-bearing	7,331,866			6,848,962
Total customer deposits	8,658,818			8,141,959
Federal funds purchased	22			28,022
Federal Home Loan Bank advances	1,173,238			1,353,307
Securities sold under repurchase agreements	1,020,080			998,430
Notes payable	11,578			16,506
Bank acceptances outstanding	7,904			5,538
Long-term debt	235,570			235,570
Accrued interest payable, accrued expenses and other liabilities	135,537			92,718
Total liabilities	11,242,747			10,872,050

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized; Series A, non-cumulative convertible, 200,000 shares issued and 196,505 shares outstanding in 2009 and 2008; Series B, cumulative, 306,546 shares issued and outstanding in 2009 and 2008.	474,425			472,311
Common stock, $0.001 par value, 200,000,000 shares authorized; 70,763,711 and 70,377,989 shares issued in 2009 and 2008, respectively; 64,032,009 and 63,745,624 shares outstanding in 2009 and 2008, respectively	71			70
Additional paid in capital	714,274			695,521
Retained earnings	431,789			572,172
Treasury stock, at cost – 6,731,702 shares in 2009 and 6,632,365 shares in 2008	(103,939		)	(102,817		)
Accumulated other comprehensive loss, net of tax	(39,852		)	(86,491		)
Total stockholders’ equity	1,476,768			1,550,766
TOTAL	$	12,719,515		$	12,422,816

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	111,669		$	137,997		$	222,485		$	293,431
Investment securities held-to-maturity	12,135			—			19,017			—
Investment securities available-for-sale	18,183			25,730			40,676			52,780
Securities purchased under resale agreements	1,292			1,264			2,542			3,817
Investment in Federal Home Loan Bank stock	—			1,479			—			2,763
Investment in Federal Reserve Bank stock	545			384			1,051			709
Short-term investments	2,509			1,051			5,485			1,589
Total interest and dividend income	146,333			167,905			291,256			355,089

INTEREST EXPENSE
Customer deposit accounts	30,890			43,536			67,963			95,789
Federal Home Loan Bank advances	13,142			17,541			27,019			37,223
Securities sold under repurchase agreements	12,004			11,290			23,876			21,819
Long-term debt	2,034			2,994			4,451			6,717
Federal funds purchased	3			368			6			1,746
Total interest expense	58,073			75,729			123,315			163,294

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	88,260			92,176			167,941			191,795
PROVISION FOR LOAN LOSSES	151,422			85,000			229,422			140,000
NET INTEREST (LOSS) INCOME AFTER PROVISION FOR LOAN LOSSES	(63,162		)	7,176			(61,481		)	51,795

NONINTEREST (LOSS) INCOME
Impairment loss on investment securities	(100,753		)	(9,945		)	(100,953		)	(9,945		)
Less: Noncredit-related impairment loss recorded in other comprehensive income	63,306			—			63,306			—
Net impairment loss on investment securities recognized in earnings	(37,447		)	(9,945		)	(37,647		)	(9,945		)
Branch fees	4,991			4,339			9,784			8,440
Net gain on sale of investment securities	1,680			3,433			5,201			7,767
Letters of credit fees and commissions	1,930			2,476			3,784			5,153
Ancillary loan fees	1,356			984			3,585			2,125
Income from life insurance policies	1,096			1,024			2,179			2,052
Net gain on sale of loans	3			273			11			2,128
Other operating income	192			854			698			1,631
Total noninterest (loss) income	(26,199		)	3,438			(12,405		)	19,351

NONINTEREST EXPENSE
Compensation and employee benefits	16,509			25,790			33,617			49,058
Other real estate owned expense	8,682			508			15,713			1,397
Deposit insurance premiums and regulatory assessments	9,568			2,321			12,893			3,513
Occupancy and equipment expense	6,297			6,539			13,688			13,547
Legal expense	1,755			1,135			3,533			3,035
Amortization of investments in affordable housing partnerships	1,652			1,920			3,412			3,635
Loan-related expense	1,642			2,245			3,077			3,617
Data processing	1,141			1,135			2,283			2,331
Amortization and impairment loss on premiums on deposits acquired	1,092			1,827			2,217			4,564
Deposit-related expenses	1,014			1,237			1,915			2,185
Impairment loss on goodwill	—			586			—			586
Other operating expenses	8,560			10,412			16,970			21,077
Total noninterest expense	57,912			55,655			109,318			108,545

LOSS BEFORE BENEFIT FROM INCOME TAXES	(147,273		)	(45,041		)	(183,204		)	(37,399		)
BENEFIT FROM INCOME TAXES	(60,548		)	(19,154		)	(74,013		)	(16,556		)

Net loss before extraordinary item	(86,725		)	(25,887		)	(109,191		)	(20,843		)

Impact of desecuritization (Note 7)	5,366			—			5,366			—
NET LOSS AFTER EXTRAORDINARY ITEM	(92,091		)	(25,887		)	(114,557		)	(20,843		)
PREFERRED STOCK DIVIDENDS, INDUCEMENT, AND AMORTIZATION OF PREFERRED STOCK DISCOUNT	(23,623		)	—			(32,366		)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(115,714	)	$	(25,887	)	$	(146,923	)	$	(20,843	)

LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS
BASIC	$	(1.83	)	$	(0.41	)	$	(2.33	)	$	(0.33	)
DILUTED	$	(1.83	)	$	(0.41	)	$	(2.33	)	$	(0.33	)
DIVIDENDS DECLARED PER COMMON SHARE	$	0.01		$	0.10		$	0.03		$	0.20

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC	63,105			62,599			63,052			62,542
DILUTED	63,105			62,599			63,052			62,542

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

			Additional														Accumulated
			Paid In														Other
			Capital					Additional									Comprehensive						Total
	Preferred		Preferred			Common		Paid In			Retained			Treasury			Loss,			Comprehensive			Stockholders’
	Stock		Stock			Stock		Capital			Earnings			Stock			Net of Tax			Income (Loss)			Equity

BALANCE, JANUARY 1, 2008
Comprehensive loss	$	—	$	—		$	70	$	652,297		$	657,183		$	(98,925	)	$	(38,802	)				$	1,171,823
Net loss for the period											(20,843		)							$	(20,843	)	(20,843		)
Net unrealized loss on investment securities available-for-sale																	(66,323		)	(66,323		)	(66,323		)
Total comprehensive loss																				$	(87,166	)
Cumulative effect of change in accounting principle pursuant to adoption of EITF 06-4											(479		)										(479		)
Stock compensation costs								3,016															3,016
Tax provision from stock plans								(229		)													(229		)
Issuance of 200,000 shares Series A convertible preferred stock, net of stock issuance costs			194,075																				194,075
Issuance of 367,146 shares pursuant to various stock plans and agreements								1,529															1,529
Cancellation of 65,561 shares due to forfeitures of issued restricted stock								2,096						(2,096		)							—
Purchase accounting adjustment pursuant to DCB Acquisition								2,298															2,298
Purchase of 410 shares of treasury stock due to the vesting of restricted stock														(8		)							(8		)
Common stock dividends											(12,659		)										(12,659		)
BALANCE, JUNE 30, 2008	$	—	$	194,075		$	70	$	661,007		$	623,202		$	(101,029	)	$	(105,125	)				$	1,272,200

BALANCE, DECEMBER 31, 2008			$	472,311		$	70	$	695,521		$	572,172		$	(102,817	)	$	(86,491	)				$	1,550,766
Cumulative effect adjustment for reclassification of the previously recognized noncredit-related impairment loss on investment securities											8,110						(8,110		)				—
BALANCE, JANUARY 1, 2009	$	—	$	472,311		$	70	$	695,521		$	580,282		$	(102,817	)	$	(94,601	)				$	1,550,766
Comprehensive loss
Net loss after extraordinary item for the year											(114,557		)							$	(114,557	)	(114,557		)
Net unrealized gain on investment securities available-for-sale																	60,915			60,915			60,915
Net unrealized loss as a result of desecuritization																	30,551			30,551			30,551
Noncredit-related impairment loss on investment securities recorded in the current year																	(36,717		)	(36,717		)	(36,717		)
Total comprehensive loss																				$	(59,808	)
Stock compensation costs								2,908															2,908
Tax provision from stock plans								(404		)													(404		)
Series B preferred stock issuance cost			(44		)																		(44		)
Issuance of 385,722 shares pursuant to various stock plans and agreements						1		389															390
Cancellation of 45,268 shares due to forfeitures of issued restricted stock								1,087						(1,087		)							—
Purchase of 8,978 shares of treasury stock due to the vesting of restricted stock														(35		)							(35		)
Amortization of Series B preferred stock discount			2,158								(2,158		)										—
Preferred stock dividends											(15,435		)										(15,435		)
Common stock dividends											(1,570		)										(1,570		)
Inducement of preferred stock conversion								14,773			(14,773		)										—
BALANCE, JUNE 30, 2009	$	—	$	474,425		$	71	$	714,274		$	431,789		$	(103,939	)	$	(39,852	)				$	1,476,768

	Six Months Ended June 30,
	2009		2008
	(In thousands)
Disclosure of reclassification amounts:
Unrealized holding gain (loss) on securities arising during the period, net of tax (expense) benefit of $(52,607) in 2009 and $48,942 in 2008	$	72,647	$	(67,586	)
Less: Reclassification adjustment for gain included in net loss, net of tax expense of $(13,628), in 2009 and $(915) in 2008	18,819		1,263
Net unrealized gain (loss) on securities, net of tax (expense) benefit of $(66,235) in 2009 and $48,027 in 2008	$	91,466	$	(66,323	)

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) after extraordinary item	$	(114,557	)	$	(20,843	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	11,572			10,103
Impairment loss on goodwill	—			586
Credit-related impairment loss on investment securities available-for-sale	37,647			9,945
Impairment loss on other equity investment	581			—
Stock compensation costs	2,908			3,016
Deferred tax benefit	(11,856		)	(49,444		)
Provision for loan losses and impact of desecuritization	238,684			140,000
Provision for loss on other real estate owned	15,938			690
Net gain on sales of investment securities, loans and other assets	616			(8,682		)
Federal Home Loan Bank stock dividends	—			(2,362		)
Originations of loans held for sale	(25,785		)	(34,330		)
Proceeds from sale of loans held for sale	25,846			34,655
Tax provision from stock plans	404			229
Net change in accrued interest receivable and other assets	(6,507		)	25,718
Net change in accrued interest payable, accrued expenses and other liabilities	(13,747		)	(6,583		)
Total adjustments	276,301			123,541
Net cash provided by operating activities	161,744			102,698

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in loans	180,368			(41,862		)
Purchases of:
Short-term investments	(376,097		)	(880		)
Securities purchased under resale agreements	(25,000		)	—
Investment securities held-to-maturity	(672,336		)	—
Investment securities available-for-sale	(1,021,779		)	(820,430		)
Loans receivable	(91,238		)	—
Federal Home Loan Bank stock	—			(9,400		)
Federal Reserve Bank stock	(9,196		)	(5,904		)
Investments in affordable housing partnerships	(19		)	—
Premises and equipment	(360		)	(1,742		)
Proceeds from:
Sale of investment securities	237,379			376,148
Sale of securities purchased under resale agreements	—			100,000
Sale of loans receivable	38,768			146,556
Sale of other real estate owned	36,961			9,949
Maturity of short term investments	50,245			—
Repayments, maturity and redemption of investment securities	875,483			388,627
Redemption of Federal Home Loan Bank stock	—			6,054
Acquisitions, net of cash paid	—			(924		)
Net cash (used in) provided by investing activities	(776,821		)	146,192

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payment for):
Deposits	516,859			240,091
Short-term borrowings	(6,350		)	(487,269		)
Proceeds from:
Issuance of long-term borrowings	—			250,000
Issuance of preferred stock and common stock warrants, net of stock issuance costs	—			194,075
Issuance of common stock pursuant to various stock plans and agreements	390			1,529
Payment for:
Repayment of long-term borrowings	(179,997		)	(165,000		)
Repayment of notes payable on affordable housing investments	(4,928		)	(5,709		)
Repurchase of treasury shares pursuant to stock repurchase program and vesting of restricted stock	(35		)	(8		)
Issuance cost of Series B preferred stock	(44		)	—
Cash dividends on preferred stock	(14,583		)	—
Cash dividends on common stock	(1,570		)	(12,659		)
Tax provision from stock plans	(404		)	(229		)
Net cash provided by financing activities	309,338			14,821

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(305,739		)	263,711
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	878,853			160,347
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	573,114		$	424,058

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	131,380		$	159,084
Income tax payments, net of refunds	(13,133		)	36,477
Noncash investing and financing activities:
Desecuritization of loans receivable	635,614			—
Real estate acquired through foreclosure	78,872			26,009
Loans to facilitate sales of real estate owned	27,982			—
Affordable housing investment financed through notes payable	—			3,000

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For Six Months Ended June 30, 2009 and 2008

(Unaudited)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) and its wholly-owned subsidiaries, East West Bank and subsidiaries (the “Bank”) and East West Insurance Services, Inc. Intercompany transactions and accounts have been eliminated in consolidation. East West also has nine wholly-owned subsidiaries that are statutory business trusts (the “Trusts”). In accordance with Financial Accounting Standards Board Interpretation No. 46(R), Consolidation of Variable Interest Entities, the Trusts are not consolidated into the accounts of East West Bancorp, Inc.

The interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the six months ended June 30, 2009 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Events subsequent to the condensed consolidated balance sheet date have been evaluated through August 7, 2009, the date the financial statements are available to be issued, for inclusion in the accompanying financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Certain prior year balances have been reclassified to conform to current year presentation.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Standards

Table of Contents

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces FASB Statement No. 141, Business Combinations. SFAS 141(R) establishes principles and requirements for how an acquiring company (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008. SFAS 141(R), effective for the Company on January 1, 2009, applies to all transactions or other events in which the Company obtains control of one or more businesses. Management will assess each transaction on a case-by-case basis as they occur.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51”. This Statement requires that noncontrolling or minority interests in subsidiaries be presented in the consolidated statement of financial position within equity, but separate from the parents’ equity, and that the amount of the consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In February 2008, the FASB issued FASB Staff Position FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (“FSP No. 140-3”), which provides a consistent framework for the evaluation of a transfer of a financial asset and subsequent repurchase agreement entered into with the same counterparty. FSP FAS No. 140-3 provides guidelines that must be met in order for an initial transfer and subsequent repurchase agreement to not be considered linked for evaluation. If the transactions do not meet the specified criteria, they are required to be accounted for as one transaction. This FSP is effective for fiscal years beginning after November 15, 2008, and shall be applied prospectively to initial transfers and repurchase financings for which the initial transfer is executed on or after adoption. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In February 2008, the FASB issued SFAS No. 157-2, Effective Date of FASB Statement No. 157, which provided for a one-year deferral of the implementation of this standard for other nonfinanical assets and liabilities, effective for fiscal years beginning after November 15, 2008. The adoption of this additional guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the financial position, financial performance, and cash flows of the Company. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In April 2008, the FASB directed the FASB Staff to issue FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used for purposes of determining the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). FSP No. FAS 142-3 is intended to improve the consistency between the useful life of a recognized

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intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier application is not permitted. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In June 2008, the FASB issued FSP EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-06-1 requires all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends to be considered participating securities and requires entities to apply the two-class method of computing basic and diluted earnings per share. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of this guidance did not have a material effect on the Company’s basic and diluted earnings per share calculation.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest Entities”. This disclosure-only FSP improves the transparency of transfers of financial assets and an enterprise’s involvement with variable interest entities (VIEs), including qualifying special-purpose entities (QSPEs). The disclosures required by this FSP are intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying SPEs. This FSP shall be effective for the first reporting period ending after December 15, 2008, with earlier application encouraged, and shall be applied for each annual and interim reporting period thereafter. The disclosure requirements related to the adoption of this guidance are presented in Note 3 and Note 8 of the Company’s condensed consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1 (“EITF 99-20-1”), Amendments to the Impairment Guidance of EITF Issue No. 99-20, which revises the other-than-temporary-impairment (“OTTI”) guidance on beneficial interests in securitized financial assets that are within the scope of EITF Issue 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets. EITF 99-20-1 amends Issue 99-20, to more closely align its OTTI guidance with paragraph 16 of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, by (1) removing the notion of a “market participant” and (2) inserting a “probable” concept related to the estimation of a beneficial interest’s cash flows. EITF 99-20-1 is effective prospectively for interim and annual periods ending after December 15, 2008. Retrospective application of this FSP is prohibited. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124, Recognition and Presentation of Other-Than-Temporary Impairments, which makes changes to the timing of loss recognition and earnings for debt and similar investment securities classified as either “available-for-sale” or “held-to-maturity”. The FSP provides that if an entity intends to sell an impaired debt security prior to recovery of its amortized cost basis, or if it is more likely than not that it will have to sell the security prior to recovery, then the full amount of the impairment is to be classified as other than temporary and recognized in earnings. Otherwise, the portion of the impairment loss deemed to constitute a credit loss is considered an OTTI loss to be reported in earnings. The non-credit loss portion is recognized in other comprehensive income. This FSP also requires entities to initially apply the provisions of the standard to the noncredit portion of previously recorded OTTI impaired securities, existing as of the date of initial adoption, by making a cumulative-effect adjustment from the opening balance of retained earnings to other comprehensive income in the period of adjustment. Upon adoption of FSP FAS 115-2 and FAS 124, the Company reclassified the noncredit portion of previously recognized OTTI totaling $8.1 million, net of tax, from the opening balance of retained earnings to other comprehensive income. Additionally,

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upon implementation of this FSP as of March 31, 2009, the Company recorded $200 thousand, on a pre-tax basis, of the credit portion of OTTI through earnings and $7.6 million, net of tax, of the non-credit portion of OTTI in other comprehensive income.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also requires additional disclosures relating to fair value measurement inputs and valuation techniques, as well as providing disclosures for all debt and equity investment securities by major security types rather than by major security categories that should be based on the nature and risks of the security during both interim and annual periods. The adoption of this FSP resulted in additional disclosures which are presented in Note 3 of the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which increases the frequency of fair value disclosures from an annual basis only to a quarterly basis. The FSP will require public entities to disclose in their interim financial statements the fair value of all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, as well as the methods and significant assumptions used to estimate the fair value of those instruments. The FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4, FSP FAS 115-2 and FAS 124-2. This FSP does not require disclosures for earlier periods presented for comparative periods at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after the initial adoption. The adoption of this FSP on June 30, 2009 resulted in additional disclosures which are presented in Note 3 of the Company’s condensed consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial statement preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165 also requires entities to disclose the date through which subsequent events have been evaluated. SFAS 165 was effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, which amends Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. It is effective for financial statements issued for fiscal years beginning after November 15, 2009, and early adoption is prohibited. The Company is currently evaluating the impact that this statement will have on its financial condition, results of operations, or cash flows.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled

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through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. It is effective for financial statements issued for fiscal years beginning after November 15, 2009, and early adoption is prohibited. The Company does not expect the adoption of this guidance to have a material effect on its financial condition, results of operations, or cash flows.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) — a replacement of FASB Statement No. 162 (“Codification”). This Codification will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and nonauthoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of this guidance to have a material effect on its financial condition, results of operations, or cash flows.

3. FAIR VALUE

The Company adopted SFAS 157 effective January 1, 2008. SFAS 157 provides a framework for measuring fair value under GAAP. This standard applies to all financial assets and liabilities that are being measured and reported at fair value on a recurring and non-recurring basis. For the Company, this includes the investment securities available-for-sale portfolio, equity swap agreements, derivatives payable, mortgage servicing assets, and impaired loans.

The Company adopted FSP SFAS 157-2 effective January 1, 2009. FSP SFAS 157-2 provided for a one-year deferral of the implementation of SFAS 157 for other nonfinanical assets and liabilities, effective for fiscal years beginning after November 15, 2008. For the Company, this includes other real estate owned (“OREO”).

Upon adoption of FSP SFAS 157-4 effective March 31, 2009, the Company has provided additional disclosures relating to fair value measurement inputs and valuation techniques as well as providing SFAS 157 disclosures for all debt and equity investment securities by major security types rather than by major security categories that should be based on the nature and risks of the security during both interim and annual periods.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market and income approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

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· Level 1 — Quoted prices for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Level 1 financial instruments typically include U.S. Treasury securities.

· Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 2 financial instruments typically include U.S. Government debt and agency mortgage-backed securities, municipal securities, U.S. Government sponsored enterprise preferred stock securities, trust preferred securities, equity swap agreements, and OREO.

· Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category typically includes mortgage servicing assets, impaired loans, private label mortgage-backed securities, pooled trust preferred securities, and derivatives payable.

In determining the appropriate hierarchy levels, the Company performs a detailed analysis of assets and liabilities that are subject to SFAS 157. The following table presents both financial and non-financial assets and liabilities that are measured at fair value on a recurring and non-recurring basis. These assets and liabilities are reported on the consolidated balance sheets at their fair values as of June 30, 2009. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

	Assets (Liabilities) Measured at Fair Value on a Recurring Basis as of June 30, 2009
	Fair Value Measurements June 30, 2009			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Investment Securities Available-For-Sale
U.S. Treasury securities	$	2,515		$	2,515	$	—	$	—
U.S. Government agency securities and U.S. Government sponsored enterprise debt securities	453,592			—		453,592		—
U.S. Government agency securities and U.S. Government sponsored enterprise residential mortgage-backed securities	834,374			—		834,374		—
Municipal securities	11,992			—		11,992		—
Other residential mortgage-backed securities	16,628			—		—		16,628
Corporate debt securities
Investment grade	41,564			—		40,319		1,245
Non-investment grade	19,188			—		4,601		14,587
U.S. Government sponsored enterprise equity securities	1,957			—		1,957		—
Total Investment Securities Available-For-Sale	$	1,381,810		$	2,515	$	1,346,835	$	32,460
Equity swap agreements	$	13,308		—		$	13,308	—
Derivatives payable	(13,323		)	—		—		(13,323		)

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	Assets Measured at Fair Value on a Non-Recurring Basis for the Three Months Ended June 30, 2009
	Fair Value Measurements June 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
	(In Thousands)
Mortgage Servicing Assets	$	9,466	$	—	$	—	$	9,466	$	(86	)
Impaired Loans	110,351		—		—		110,351		(3,854		)
OREO	15,986		—		15,986		—		(4,182		)

	Assets Measured at Fair Value on a Non-Recurring Basis for the Six Months Ended June 30, 2009
	Fair Value Measurements June 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
	(In Thousands)

Mortgage Servicing Assets	$	9,466	$	—	$	—	$	9,466	$	680
Impaired Loans	136,373		—		—		136,373		(4,243		)
OREO	16,359		—		16,359		—		(6,920		)

At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The following table provides a reconciliation of the beginning and ending balances for available-for-sale investment securities by major security type and for major asset and liability categories measured at fair value using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2009:

	Investment Securities Available-for-Sale
				Residential Mortgage-Backed Securities						Corporate Debt Securities
	Total			Investment Grade			Non- Investment Grade			Investment Grade			Non- Investment Grade			Residual Securities			Derivatives Payable

Beginning balance, April 1, 2009	$	635,009		$	546,520		$	11,325		$	1,306		$	21,930		$	53,928		$	(11,509	)
Total gains or (losses) (1)
Included in earnings	(33,858		)	2,461			191			3			(37,442		)	929			(1,814		)
Included in other comprehensive loss (unrealized) (2)	70,331			71,216			1,350			(54		)	28,717			(30,898		)	—
Purchases, issuances, sales, settlements (3)	(639,022		)	(602,585		)	(13,850		)	(10		)	1,382			(23,959		)	—
Transfers in and/or out of Level 3 (4)	—			(17,612		)	17,612			—			—			—			—
Ending balance, June 30, 2009	$	32,460		$	—		$	16,628		$	1,245		$	14,587		$	—		$	(13,323	)
Changes in unrealized losses included in earnings relating to assets and liabilities still held at June 30, 2009	$	(35,633	)	$	—		$	—		$	—		$	(37,447	)	$	—		$	1,814

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	Investment Securities Available-for-Sale
				Residential Mortgage-Backed Securities						Corporate Debt Securities
							Non-						Non-
				Investment			Investment			Investment			Investment			Residual			Derivatives
	Total			Grade			Grade			Grade			Grade			Securities			Payable

Beginning balance, January 1, 2009	$	624,351		$	527,109		$	10,216		$	1,294		$	35,670		$	50,062		$	(14,142	)
Total gains or (losses) (1)
Included in earnings	(30,955		)	2,629			192			7			(37,640		)	3,857			819
Included in other comprehensive loss (unrealized) (2)	92,783			101,456			2,458			(34		)	13,923			(25,020		)	—
Purchases, issuances, sales, settlements (3)	(653,719		)	(613,582		)	(13,850		)	(22		)	2,634			(28,899		)	—
Transfers in and/or out of Level 3 (4)	—			(17,612		)	17,612			—			—			—			—
Ending balance, June 30, 2009	$	32,460		$	—		$	16,628		$	1,245		$	14,587		$	—		$	(13,323	)
Changes in unrealized losses included in earnings relating to assets and liabilities still held at June 30, 2009	$	(38,466	)	$	—		$	—		$	—		$	(37,647	)	$	—		$	(819	)

(1) Total gains or losses represent the total realized and unrealized gains and losses recorded for Level 3 assets and liabilities. Realized gains or losses are reported in the consolidated statements of operations.

(2) Unrealized gains or losses as well as the noncredit portion of OTTI on investment securities are reported in accumulated other comprehensive loss, net of tax, in the consolidated statements of changes in stockholders’ equity.

(3) Purchases, issuances, sales and settlements represent Level 3 assets and liabilities that were either purchased, issued, sold, or settled during the period. The amounts are recorded at their end of period fair values.

(4) Transfers in and/or out represent existing assets and liabilities that were either previously categorized as a higher level and the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 and the lowest significant input became observable during the period. These assets and liabilities are recorded at their end of period fair values.

Valuation Methodologies

Investment Securities Available-for-Sale — The fair values of available-for-sale investment securities are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or prices obtained from independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values.

The Company’s Level 3 available-for-sale securities include one private-label mortgage-backed security and certain pooled trust preferred securities. The fair values of the private-label mortgage-backed security and pooled trust preferred securities have traditionally been based on the average of at least two quoted market prices obtained from independent external brokers since broker quotes in an active market are given the highest priority under SFAS 157. However, as a result of the global financial crisis and illiquidity in the U.S. markets, the market for these securities has become increasingly inactive since mid-2007. It is the Company’s view that current broker prices on the private-label mortgage-backed security and certain pooled trust preferred securities are based on forced liquidation or distressed sale values in very inactive markets that are not representative of the economic value of these securities. As such, the fair value of the private-label mortgage-backed security and pooled trust preferred securities have been below cost since the advent of the financial crisis. Additionally, most, if not all, of these broker quotes are nonbinding. In accordance with FSP SFAS 157-4, the Company considered whether to place little, if any, weight on transactions that are not orderly when estimating fair value. Although length of time and severity of impairment are among the factors to consider when determining whether a security that is other than temporarily impaired, the private-label mortgage backed security and pooled trust preferred securities have only exhibited deep declines in value since the credit crisis began. The

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Company therefore believes that this is an indicator that the decline in price is solely a result of the lack of liquidity in the market for these securities and the broker quotes received stem from distressed sale transactions.

For the private-label mortgage-backed security, the Company determined the valuation by using the appropriate combination of the market approach reflecting current broker prices and a discounted cash flow approach. The values resulting from each approach (i.e. market and income approaches) were weighted to derive the final fair value on the private-label mortgage-backed security. For the pooled trust preferred securities, the fair value was derived based on discounted cash flow analyses. In order to determine the appropriate discount rate used in calculating fair values derived from the income method for the private-label mortgage-backed security and pooled trust preferred securities, the Company has made assumptions using an exit pricing approach related to the implied rate of return which have been adjusted for general change in market rates, estimated changes in credit quality and liquidity risk premium, specific non-performance and default experience in the collateral underlying the securities. The gains and losses recorded in the period are recognized in noninterest income. During the second quarter of 2009, the private-label mortgage-backed security was downgraded from investment grade to non-investment grade.

In May 2009, the desecuritization of the Company’s Level 3 private-label mortgage backed securities resulted in a $635.6 million increase in single and multifamily loans receivable and is reflected in the decrease of Level 3 investment grade mortgage-backed investment securities for the three months and six months ended June 30, 2009 Level 3 reconciliation table described above.

Equity Swap Agreements — The Company has entered into several equity swap agreements with a major investment brokerage firm to hedge against market fluctuations in a promotional equity index certificate of deposit product offered to bank customers. This deposit product, which has a term of 5 years or 5½ years, pays interest based on the performance of the Hang Seng China Enterprises Index (“HSCEI”). The fair value of these equity swap agreements is based on the income approach. The fair value is based on the change in the value of the HSCEI and the volatility of the call option over the life of the individual swap agreement. The option value is derived based on the volatility, the interest rate and the time remaining to maturity of the call option. The Company’s consideration of its counterparty’s credit risk resulted in a $56 thousand adjustment to the valuation of the equity swap agreements for the quarter ended June 30, 2009. The valuation of equity swap agreements falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of these derivative contracts.

Derivatives Payable — The Company’s derivatives payable are recorded in conjunction with the certificate of deposits (“host instrument”) that pays interest based on changes in the HSCEI and are included in interest-bearing deposits on the consolidated balance sheets. The fair value of these embedded derivatives is based on the income approach. The Company’s consideration of its own credit risk resulted in a $41 thousand adjustment to the valuation of the derivative liabilities, and a net gain of $121 thousand was recognized in noninterest income as the net difference between the valuation of the equity swap agreements and derivatives payable for the quarter ended June 30, 2009. The valuation of the derivatives payable falls within Level 3 of the fair value hierarchy since the significant inputs used in deriving the fair value of these derivative contracts are not directly observable.

Mortgage Servicing Assets (“MSAs”) — The Company records MSAs in conjunction with its loan sale and securitization activities since the servicing of the underlying loans is retained by the Bank. MSAs are initially measured at fair value using an income approach. The initial fair value of MSAs is determined based on the present value of estimated net future cash flows related to contractually specified servicing fees. The valuation for MSAs falls within Level 3 of the fair value hierarchy since there are no quoted prices for MSAs and the significant inputs used to determine fair value are not directly observable. The valuation of MSAs is determined using a discounted cash flow approach utilizing the appropriate yield curve and several market-derived assumptions including prepayment speeds, servicing cost, delinquency and foreclosure costs and behavior, and float earnings rate. Net cash flows are present valued using a market-derived discount rate. The resulting fair value is then compared to recently observed bulk market transactions with similar characteristics. The fair value is adjusted accordingly to be better aligned with current observed market trends and activity.

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Impaired Loans — In accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15, the Company’s impaired loans are generally measured using the fair value of the underlying collateral, which is determined based on the most recent valuation information received, which may be adjusted based on factors such as the Company’s historical knowledge and changes in market conditions from the time of valuation. Impaired loans fall within Level 3 of the fair value hierarchy since they are measured at fair value based on the most recent valuation information received on the underlying collateral.

Other Real Estate Owned (“OREO”) — The Company’s OREO represents properties acquired through foreclosure or through full or partial satisfaction of loans, are considered held-for-sale, and are recorded at the lower of cost or estimated fair value at the time of foreclosure. The fair values of OREO properties are based on third-party appraisals, broker price opinions or accepted written offers. These valuations are reviewed and approved by the Company’s appraisal department, credit review, or OREO department. OREO properties are classified as Level 2 assets in the fair value hierarchy. The OREO balance of $27.2 million included in the condensed consolidated balance sheets as of June 30, 2009 is recorded net of estimated disposal costs.

Fair Value of Financial Instruments

The Company adopted FSP FAS 107-1 and APB 28-1 effective June 30, 2009, which increases the frequency of fair value disclosures from an annual basis only to a quarterly basis. The carrying amounts and fair values of the Company’s financial instruments as of June 30, 2009 and December 31, 2008 were as follows:

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	As of June 30, 2009					As of December 31, 2008
	Carrying					Carrying
	Notional or		Estimated			Notional or		Estimated
	Contract Amount		Fair Value			Contract Amount		Fair Value
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	573,114	$	573,114		$	878,853	$	878,853
Short-term investments	554,293		554,721			228,441		228,353
Securities purchased under resale agreements	75,000		77,576			50,000		51,581
Investment securities held-to-maturity	794,840		794,463			122,317		123,105
Investment securities available-for-sale	1,381,810		1,381,810			2,040,194		2,040,194
Loans receivable, net	8,289,229		8,187,554			8,069,377		8,036,406
Investment in Federal Home Loan Bank stock	86,729		86,729			86,729		86,729
Investment in Federal Reserve Bank stock	36,785		36,785			27,589		27,589
Accrued interest receivable	50,312		50,312			46,230		46,230
Equity swap agreements	38,838		13,308			43,453		13,853

Financial Liabilities:
Customer deposit accounts:
Demand, savings and money market deposits	4,070,949		3,650,330			3,399,817		3,141,126
Time deposits	4,587,869		4,595,022			4,742,142		4,750,957
Federal funds purchased	22		22			28,022		28,022
Federal Home Loan Bank advances	1,173,238		1,200,416			1,353,307		1,397,081
Securities sold under repurchase agreements	1,020,080		1,261,167			998,430		1,204,329
Notes payable	11,578		11,578			16,506		16,506
Accrued interest payable	10,912		10,912			18,977		18,977
Long-term debt	235,570		92,099			235,570		120,325
Derivatives payable	38,838		13,323			43,453		14,142

Off-balance sheet financial instruments:
Commitments to extend credit	1,196,668		12,238			1,469,513		16,001
Standby letters of credit	639,233		3,286			656,979		3,614
Commercial letters of credit	34,434		(96		)	39,426		(204		)

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below:

Cash and Cash Equivalents — The carrying amounts approximate fair values due to the short-term nature of these instruments.

Short-Term Investments -The fair values of short-term investments generally approximate their book values due to their short maturities.

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Securities Purchased Under Resale Agreements — For securities purchased under resale agreements with original maturities of 90 days or less, the carrying amounts generally approximate fair values due to the short-term nature of these instruments. At June 30, 2009 and December 31, 2008, the securities purchased under resale agreements are long-term in nature and the fair value is estimated by discounting the cash flows based on expected maturities or repricing dates utilizing estimated market discount rates and taking into consideration the call features of each instrument.

Investment Securities Held-To-Maturity— The fair values of the investment securities held-to-maturity are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values.

EAST WEST BANCORP INC - Quarter Report: 2009 June (Form 10-Q)

FORM 10-Q

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Forward-Looking Statements

For Six Months Ended June 30, 2009 and 2008