EAST WEST BANCORP INC - Quarter Report: 2010 March (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

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

For the quarterly period ended March 31, 2010

¨	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 þ No ¨

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 ¨ No ¨

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 þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

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

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 147,948,240 shares of common stock as of April 30, 2010.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION			5
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5-8
		Notes to Condensed Consolidated Financial Statements (Unaudited)	9-36
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37-70
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	70
	Item 4.	Controls and Procedures	70-71
PART II - OTHER INFORMATION			72
	Item 1.	Legal Proceedings	72
	Item 1A.	Risk Factors	72
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
	Item 3.	Defaults Upon Senior Securities	73
	Item 4.	Submission of Matters to a Vote of Security Holders	73
	Item 5.	Other Information	73
	Item 6.	Exhibits	73
SIGNATURE			74

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:

·	our ability to integrate the former United Commercial Bank (“UCB”) operations and to achieve expected synergies, operating efficiencies or other benefits within expected time frames, or at all, or within expected cost projections;

·	our ability to integrate and retain former depositors and borrowers of United Commercial Bank;

·	our ability to manage the loan portfolio acquired from United Commercial Bank within the limits of the loss protection provided by the Federal Deposit Insurance Corporation (“FDIC”);

·	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 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 2009 Form 10-K under the heading “ITEM 1A. RISK FACTORS” and the information set forth under “RISK FACTORS” in this Form 10-Q. 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.

PART I - FINANCIAL INFORMATION

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	March 31,			December 31,
	2010			2009
ASSETS
Cash and cash equivalents	$	1,180,735		$	835,141
Short-term investments		457,184			510,788
Securities purchased under resale agreements		380,000			227,444
Investment securities available for sale, at fair value (with amortized cost of $2,187,882 at March 31, 2010 and $2,563,043 at December 31, 2009)		2,191,527			2,564,081
Loans held for sale, at fair value		17,540			28,014

Loans receivable, excluding covered loans (net of allowance for loan losses of $250,517 at March 31, 2010 and $238,833 at December 31, 2009)		8,233,268			8,218,671
Covered loans		5,220,721			5,598,155
Total loans receivable, net		13,453,989			13,816,826

FDIC indemnification asset		980,950			1,091,814

Other real estate owned, net		6,907			13,832
Other real estate owned covered, net		78,354			44,273
Total other real estate owned		85,261			58,105

Accrued interest receivable		78,659			82,370
Due from customer acceptances		51,411			40,550
Investment in affordable housing partnerships		101,837			84,833
Premises and equipment		135,168			59,099
Premiums on deposits acquired, net		86,351			89,735
Goodwill		337,438			337,438
Other assets		761,126			732,974
TOTAL	$	20,299,176		$	20,559,212

LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposit accounts:
Noninterest-bearing	$	2,289,933		$	2,291,259
Interest-bearing		12,316,769			12,696,354
Total deposits		14,606,702			14,987,613
Federal Home Loan Bank advances		1,769,452			1,805,387
Securities sold under repurchase agreements		1,032,511			1,026,870
Notes payable and other borrowings		65,262			74,406
Bank acceptances outstanding		51,411			40,550
Long-term debt		235,570			235,570
Accrued interest payable, accrued expenses and other liabilities		232,479			104,157
Total liabilities		17,993,387			18,274,553

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized; Series A, non-cumulative convertible, 200,000 shares issued and 85,741 shares outstanding in 2010 and 2009; Series B, cumulative, 306,546 shares issued and outstanding in 2010 and 2009; Series C, cumulative convertible, 335,047 issued and outstanding in 2009.		369,095			693,803
Common stock, $0.001 par value, 200,000,000 shares authorized; 154,811,496 and 116,754,403 shares issued in 2010 and 2009, respectively; 147,907,806 and 109,962,965 shares outstanding in 2010 and 2009, respectively.		155			117
Additional paid in capital		1,418,648			1,091,047
Retained earnings		621,896			604,223
Treasury stock, at cost - 6,903,690 shares in 2010 and 6,791,438 shares in 2009		(106,088	)		(105,130	)
Accumulated other comprehensive income, net of tax		2,083			599
Total stockholders' equity		2,305,789			2,284,659
TOTAL	$	20,299,176		$	20,559,212

See accompanying notes to condensed consolidated financial statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2010			2009
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	287,944		$	110,816
Investment securities		20,176			29,375
Securities purchased under resale agreements		6,263			1,250
Short-term investments		3,541			2,976
Investment in Federal Reserve Bank stock		657			506
Investment in Federal Home Loan Bank stock		122			-
Total interest and dividend income		318,703			144,923

INTEREST EXPENSE
Customer deposit accounts		33,448			37,073
Securities sold under repurchase agreements		12,541			11,872
Federal Home Loan Bank advances		9,005			13,877
Long-term debt		1,547			2,417
Other borrowings		438			3
Total interest expense		56,979			65,242

Net interest income before provision for loan losses		261,724			79,681
Provision for loan losses		76,421			78,000
Net interest income after provision for loan losses		185,303			1,681

NONINTEREST (LOSS) INCOME
Decrease in FDIC indemnification asset and receivable		(43,572	)		-

Impairment loss on investment securities		(4,799	)		(13,380	)
Less: non-credit related impairment loss recorded in other comprehensive income		-			13,180
Net impairment loss on investment securities recognized in earnings		(4,799	)		(200	)

Net gain on sale of investment securities		16,111			3,521
Branch fees		8,758			4,793
Gain on acquisition of United Commercial Bank		8,095			-
Letters of credit fees and commissions		2,740			1,854
Ancillary loan fees		1,689			2,229
Income from life insurance policies		1,105			1,083
Net gain on sale of loans		-			8
Other operating income		1,422			506
Total noninterest (loss) income		(8,451	)		13,794

NONINTEREST EXPENSE
Compensation and employee benefits		50,779			17,108
Other real estate owned expense		18,012			7,031
Occupancy and equipment expense		11,944			7,391
Deposit insurance premiums and regulatory assessments		11,581			3,325
Prepayment penalty for FHLB advances		9,932			-
Amortization of premiums on deposits acquired		3,384			1,125
Amortization of investments in affordable housing partnerships		3,037			1,760
Loan related expenses		2,997			1,435
Legal expense		2,907			1,778
Data processing		2,482			1,142
Consulting expense		2,141			448
Deposit-related expenses		1,009			901
Other operating expenses		18,705			7,962
Total noninterest expense		138,910			51,406

INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		37,942			(35,931	)
PROVISION (BENEFIT) FOR INCOME TAXES		13,026			(13,465	)
NET INCOME (LOSS)		24,916			(22,466	)
PREFERRED STOCK DIVIDENDS AND AMORTIZATION OF PREFERRED STOCK DISCOUNT		6,138			8,743
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	18,778		$	(31,209	)

EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON STOCKHOLDERS
BASIC	$	0.17		$	(0.50	)
DILUTED	$	0.13		$	(0.50	)
DIVIDENDS DECLARED PER COMMON SHARE	$	0.01		$	0.02

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC		109,961			62,998
DILUTED		146,865			62,998

See accompanying notes to condensed consolidated financial statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

(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, 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												(22,466	)							$	(22,466	)		(22,466	)
Net unrealized gain on investment securities available-for-sale																		22,175			22,175			22,175
Noncredit-related impairment loss on investment securities recorded in the current year																		(7,644	)		(7,644	)		(7,644	)
Total comprehensive loss																				$	(7,935	)
Stock compensation costs									1,428															1,428
Tax benefit from stock plans									(403	)														(403	)
Preferred stock issuance cost				(41	)																			(41	)
Issuance of 290,296 shares pursuant to various stock plans and agreements									15															15
Cancellation of 24,134 shares due to forfeitures of issued restricted stock									577						(577	)								-
Purchase of 8,882 shares of treasury stock due to the vesting of restricted stock															(35	)								(35	)
Amortization of Series B preferred stock discount				1,070								(1,070	)											-
Preferred stock dividends												(7,673	)											(7,673	)
Common stock dividends												(929	)											(929	)
BALANCE, MARCH 31, 2009	$	-	$	473,340		$	70	$	697,138		$	548,144		$	(103,429	)	$	(80,070	)				$	1,535,193

BALANCE, JANUARY 1, 2010	$	-	$	693,803		$	117	$	1,091,047		$	604,223		$	(105,130	)	$	599					$	2,284,659
Comprehensive income
Net income												24,916								$	24,916			24,916
Net unrealized gain on investment securities available-for-sale																		1,484			1,484			1,484
Noncredit-related impairment loss on investment securities recorded in the current year																		-			-			-
Total comprehensive income																				$	26,400
Stock compensation costs									1,565															1,565
Tax benefit from stock plans									(341	)														(341	)
Issuance of 953,359 shares pursuant to various stock plans and agreements							1		576															577
Conversion of 335,047 shares of Series C Preferred Stock into 37,103,734 shares of common stock				(325,299	)		37		325,262															-
Cancellation of 89,795 shares due to forfeitures of issued restricted stock									539						(539	)								-
Purchase of 22,457 shares of treasury stock due to the vesting of restricted stock															(419	)								(419	)
Amortization of Series B preferred stock discount				591								(591	)											-
Preferred stock dividends												(5,547	)											(5,547	)
Common stock dividends												(1,105	)											(1,105	)
BALANCE, MARCH 31, 2010	$	-	$	369,095		$	155	$	1,418,648		$	621,896		$	(106,088	)	$	2,083					$	2,305,789

																				Three Months Ended March 31,
																					2010			2009
																				(In thousands)
Disclosure of reclassification amounts:
Unrealized holding gain on securities arising during the period, net of tax expense of $5,826 in 2010 and $17,453 in 2009																				$	8,045		$	24,101
Less: Reclassification adjustment for gain included in net income (loss), net of tax expense of $4,751 in 2010 and $1,395 in 2009																					(6,561	)		(1,926	)
Net unrealized (loss) gain on securities, net of tax expense of $1,075 in 2010 and $16,058 in 2009																				$	1,484		$	22,175

See accompanying notes to condensed consolidated financial statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	24,916		$	(22,466	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		16,077			5,807
Accretion of discount and premium		(96,692	)		-
Decrease in FDIC indemnification asset and receivable		43,572			-
Gain related to the fair value of investments from the acquisition of United Commercial Bank		(8,095	)		-
Impairment writedown on investment securities available-for-sale		4,799			200
Stock compensation costs		1,447			1,428
Deferred tax benefit		(2,874	)		(2,033	)
Provision for loan losses		76,421			78,000
Impairment on other real estate owned		13,294			3,184
Net gain on sales of investment securities, loans and other assets		(16,052	)		(600	)
Originations of loans held for sale		(6,382	)		(12,078	)
Proceeds from sale of loans held for sale		13,695			12,111
FHLB advance prepayment penalty		9,932			-
Tax benefit from stock plans		(341	)		(403	)
Net change in accrued interest receivable and other assets		44,994			(1,407	)
Net change in accrued expenses and other liabilities		142,509			(22,022	)
Total adjustments		236,304			62,187
Net cash provided by operating activities		261,220			39,721

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans		458,384			100,111
Net decrease (increase) in short-term investments		53,604			(100,847	)
Purchases of:
Securities purchased under resale agreements		(300,000	)		-
Investment securities held-to-maturity		-			(466,018	)
Investment securities available-for-sale		(712,031	)		(867,221	)
Loans receivable		(179,386	)		(4,511	)
Federal Reserve Bank stock		(10,500	)		(9,196	)
Investments in affordable housing partnerships		(539	)		-
Premises and equipment		(79,872	)		(194	)
Proceeds from sale of:
Investment securities		615,843			185,775
Securities purchased under resale agreements		150,000			-
Loans receivable		24,478			9,396
Other real estate owned		31,195			9,799
Premises and equipment		28			-
Repayments, maturity and redemption of investment securities available-for-sale		482,270			610,984
Dividends/redemption of Federal Home Loan Bank stock		93			-
Net cash provided by (used in) investing activities		533,567			(531,922	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (payment for) proceeds from:
Deposits		(380,911	)		312,100
Short-term borrowings		(14,643	)		(28,369	)
Proceeds from:
Issuance of short-term borrowings		5,641			-
Issuance of long-term borrowings		350,000			-
Issuance of common stock pursuant to various stock plans and agreements		695			15
Payment for:
Repayment of long-term borrowings		(389,064	)		(119,999	)
Repayment of notes payable and other borrowings		(14,181	)		(1,909	)
Repurchase of treasury shares		(419	)		(35	)
Issuance and conversion costs of preferred stock & common stock		-			(41	)
Cash dividends on preferred stock		(5,547	)		(6,822	)
Cash dividends on common stock		(1,105	)		(929	)
Tax benefit from stock plans		341			403
Net cash (used in) provided by financing activities		(449,193	)		154,414

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		345,594			(337,787	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		835,141			878,853
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,180,735		$	541,066

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	54,396		$	71,370
Income tax (refunds) payments		(1,946	)		50
Noncash investing and financing activities:
Transfers to real estate owned/affordable housing partnership		76,552			30,561
Conversion of preferred stock to common stock		325,299			-

See accompanying notes to condensed consolidated financial statements.

EAST WEST BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For Three Months Ended March 31, 2010 and 2009

(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 Accounting Standards Codification (“ASC”) 810, (previously FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R)), 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 three months ended March 31, 2010 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 the date the financial statements are 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, 2009.

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

2.	SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Standards

In June 2009, the FASB issued ASC 860 (previously 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), which requires 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 was effective for the Company on January 1, 2010. The adoption of this guidance did not have a material impact to the Company’s condensed consolidated financial statements.

In June 2009, the FASB issued ASC 810 (previously 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 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 was effective for the Company on January 1,

2010. The adoption of this guidance does not have a material effect on its financial condition, results of operations, or cash flows.

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and reasons for the transfers and separate presentation of information about purchases, sales, issuances, and settlements in the reconciliation for Level 3 fair value measurements. Additionally, ASU 2010-06 clarifies existing disclosures regarding level of disaggregation and inputs and valuation techniques. The new disclosures and clarifications of existing disclosures under ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years ending after December 15, 2010 and for interim periods within those fiscal years. The Company adopted the disclosure requirements of significant transfers in and out of Level 1 and Level 2 fair value measurements (see Note 3). The Company does not expect the adoption of the disclosure requirements to have a material effect on its financial condition, results of operations, or cash flows.

3.	FAIR VALUE

Fair value is defined as 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 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 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 information according to the fair value hierarchy noted below. The hierarchy is based on 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:

·	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, single issue 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 fair value disclosure. The following tables present 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 condensed consolidated balance sheets at their fair values as of March 31, 2010 and December 31, 2009. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. There were no transfers in and out of Levels 1 and 2 during the first quarter of 2010, also there were no transfers in and out of levels 1 and 3 or levels 2 and 3.

	Assets (Liabilities) Measured at Fair Value on a Recurring Basis as of March 31, 2010
	Fair Value Measurements March 31, 2010			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	$	53,952		$	53,952	$	-	$	-
U.S. Government agency and U.S. Government sponsored enterprise debt securities		1,066,441			-		1,066,441		-
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities		26,101			-		26,101		-
Residential mortgage-backed securities		678,327			-		678,327		-
Municipal securities		5,523			-		5,523		-
Other residential mortgage-backed securities, non-investment grade		12,203			-		-		12,203
Corporate debt securities:
Investment grade		317,044			-		315,604		1,440
Non-investment grade		25,603			-		23,506		2,097
U.S. Government sponsored enterprise equity securities		1,828			-		1,828		-
Other securities		4,505			4,505		-		-
Total investment securities available-for-sale	$	2,191,527		$	58,457	$	2,117,330	$	15,740

Equity swap agreements	$	5,951		$	-	$	5,951	$	-
Derivatives payable		(5,955	)		-		-		(5,955	)
FX option		1,841			-		1,841		-

	Assets (Liabilities) Measured at Fair Value on a Recurring Basis as of December 31, 2009
	Fair Value Measurements December 31, 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	$	303,472		$	303,472	$	-	$	-
U.S. Government agency and U.S. Government sponsored enterprise debt securities		832,025			-		832,025		-
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities:
Commercial mortgage-backed securities		26,355			-		26,355		-
Residential mortgage-backed securities		724,348			-		724,348		-
Municipal securities		60,193			-		60,193		-
Other residential mortgage-backed securities:
Investment grade		95,517			-		95,517		-
Non-investment grade		41,610			-		28,872		12,738
Corporate debt securities:
Investment grade		460,895			-		459,917		978
Non-investment grade		8,861			-		6,906		1,955
U.S. Government sponsored enterprise equity securities		1,782			-		1,782		-
Other securities		9,023			9,023		-		-
Total investment securities available-for-sale	$	2,564,081		$	312,495	$	2,235,915	$	15,671

Equity swap agreements	$	14,177		$	-	$	14,177	$	-
Derivatives payable		(14,185	)		-		-		(14,185	)

	Assets Measured at Fair Value on a Non-Recurring Basis for the Three Months Ended March 31, 2010
	Fair Value Measurements March 31, 2010		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 (single and multi family, commercial)	$	12,154	$	-	$	-	$	12,154	$	(34	)

Non-covered impaired loans:
Residential single family		3,428		-		-		3,428		(1,858	)
Residential multifamily		9,259		-		-		9,259		(4,459	)
Commercial and industrial real estate, land		55,187		-		-		55,187		(19,130	)
Construction		6,666		-		-		6,666		(1,921	)
Commercial business		11,310		-		-		11,310		(6,486	)
Trade finance		379		-		-		379		(126	)
Other consumer		167		-		-		167		(82	)
Total non-covered impaired loans		86,396		-		-		86,396		(34,062	)

Non-covered OREO		6,907		-		6,907		-		(2,247	)

	Assets Measured at Fair Value on a Non-Recurring Basis for the Three Months Ended March 31, 2009
	Fair Value Measurements March 31, 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 (single and multi family, commercial)	$	16,664	$	-	$	-	$	16,664	$	766

Non-covered impaired loans:
Residential single family		3,765		-		-		3,765		(1,035	)
Residential multifamily		1,060		-		-		1,060		(116	)
Commercial and industrial real estate, land		55,410		-		-		55,410		(8,940	)
Construction		36,842		-		-		36,842		(5,548	)
Commercial business		16,831		-		-		16,831		(18,119	)
Trade finance		177		-		-		177		(262	)
Other consumer		250		-		-		250		(15	)
Total non-covered impaired loans		114,335		-		-		114,335		(34,035	)

Non-covered OREO		11,333		-		11,333		-		(2,738	)

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 tables provide 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 months ended March 31, 2010 and 2009:

	Investment Securities Available-for-Sale
				Other Residential Mortgage-Backed Securities, Non-Investment Grade			Corporate Debt Securities
	Total						Investment Grade			Non-Investment Grade			Derivatives Payable
	(In thousands)

Beginning balance, January 1, 2010	$	15,671		$	12,738		$	978		$	1,955		$	(14,185	)
Total gains or (losses): (1)
Included in earnings		(4,750	)		-			3			(4,753	)		(3	)
Included in other comprehensive loss (unrealized) (2)		4,735			(535	)		465			4,805			-
Purchases, issuances, sales, settlements (3)		84			-			(6	)		90			8,233
Transfers in and/or out of Level 3 (4)		-			-			-			-			-
Ending balance, March 31, 2010	$	15,740		$	12,203		$	1,440		$	2,097		$	(5,955	)

Changes in unrealized losses included in earnings relating to
assets and liabilities still held at March 31, 2010	$	(4,799	)	$	-		$	-		$	(4,799	)	$	3

	Investment Securities Available-for-Sale
				Other Residential Mortgage-Backed Securities					Corporate Debt Securities
	Total			Investment Grade			Non-Investment Grade		Investment Grade			Non-Investment Grade			Residual Securities			Derivatives Payable
	(In thousands)

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		2,903			168			1		4			(198	)		2,928			2,633
Included in other comprehensive loss (unrealized) (2)		22,452			30,240			1,108		20			(14,794	)		5,878			-
Purchases, issuances, sales, settlements (3)		(14,697	)		(10,997	)		-		(12	)		1,252			(4,940	)		-
Transfers in and/or out of Level 3 (4)		-			-			-		-			-			-			-
Ending balance, March 31, 2009	$	635,009		$	546,520		$	11,325	$	1,306		$	21,930		$	53,928		$	(11,509	)

Changes in unrealized losses included in earnings relating to
assets and liabilities still held at March 31, 2009	$	(200	)	$	-		$	-	$	-		$	(200	)	$	-		$	(2,633	)

(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 condensed 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 condensed consolidated statements of changes in stockholders’ equity and comprehensive income.

(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 four pooled trust preferred securities. The fair values of these investment securities represent less than 1% of the total available-for-sale investment 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. However, as a result of the global financial crisis and illiquidity in the U.S. markets, the market for these securities has been inactive since mid-2007. It is the Company’s view that current broker prices (which are typically non-binding) 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 fair value of these securities. As such, the Company considered what weight, if any, to place on transactions that are not orderly when estimating fair value.

For the private-label mortgage-backed security, the Company determined fair value 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 (the income method) prepared by management. 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 changes 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 losses recorded in the period are recognized in noninterest income.

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 51/2 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 $6 thousand adjustment to the valuation of the equity swap agreements for the quarter ended March 31, 2010. 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. The fair value of the derivative contracts is provided by a third party which the Company places reliance on.

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 condensed 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 $2 thousand adjustment to the valuation of the derivative liabilities for the quarter ended March 31, 2010. 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.

FX Option—The Company has entered into a foreign exchange option contract with a major investment firm. The settlement amount is determined based upon the performance of the Renminbi (“RMB”) relative to the US Dollar (“USD”) over the 5-year term of the contract. The performance amount is computed based on the average quarterly value of the RMB per the USD as compared to the initial value. The fair value of the derivative contract is provided by a third party and is determined based on the change in the RMB and the volatility of the option over the life of the agreement. The option value is derived based on the volatility of the option, interest rate and time remaining to the maturity. The Company has also considered the counterparty’s credit risk in determining the valuation. The valuation of the option contract falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of this derivative contract.

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.

Impaired Loans—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 non-covered OREO balance of $6.9 million included in the condensed consolidated balance sheets as of March 31, 2010 is recorded net of estimated disposal costs.

Fair Value of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments as of March 31, 2010 and December 31, 2009, were as follows:

	March 31, 2010				December 31, 2009
	Carrying				Carrying
	Notional or		Estimated		Notional or		Estimated
	Contract Amount		Fair Value		Contract Amount		Fair Value
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	1,180,735	$	1,180,735	$	835,141	$	835,141
Short-term investments		457,184		457,184		510,788		510,788
Securities purchased under resale agreements		380,000		396,432		227,444		232,693
Investment securities available-for-sale		2,191,527		2,191,527		2,564,081		2,564,081
Loans receivable, net		13,471,529		13,396,993		13,844,840		13,519,060
Investment in Federal Home Loan Bank stock		180,124		180,124		180,217		180,217
Investment in Federal Reserve Bank stock		47,285		47,285		36,785		36,785
Accrued interest receivable		78,659		78,659		82,370		82,370
Equity swap agreements		30,038		5,951		38,828		14,177
FX option		30,000		1,841		-		-

Financial Liabilities:
Customer deposit accounts:
Demand, savings and money market deposits		7,745,686		6,780,364		7,088,822