East West Bancorp (EWBC) 10-Q 2001 Q2 Quarterly report

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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, 2001
or

/ / 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 (State or other jurisdiction of incorporation or organization)	95-4703316 (I.R.S. Employer Identification No.)
415 Huntington Drive, San Marino, California (Address of principal executive offices)	91108 (Zip Code)

Registrant's telephone number, including area code:(626) 799-5700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
NONE	NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of class)

    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 / /

    Number of shares of common stock of the registrant outstanding as of July 31, 2001: 23,087,060 shares

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION			3
	Item 1.	Interim Consolidated Financial Statements	3-6
		Notes to Interim Consolidated Financial Statements	7-11
	Item 2.	Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations	12-34
	Item 3.	Quantitative and Qualitative Disclosures of Market Risks	34
PART II—OTHER INFORMATION			35
	Item 1.	Legal Proceedings	35
	Item 2.	Changes in Securities and Use of Proceeds	35
	Item 3.	Defaults upon Senior Securities	35
	Item 4.	Submission of Matters to a Vote of Security Holders	35
	Item 5.	Other Information	35
	Item 6.	Exhibits and Reports on Form 8-K	35
SIGNATURE			36

2

PART I—FINANCIAL INFORMATION

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(unaudited)

				June 30, 2001			December 31, 2000
ASSETS
	Cash and cash equivalents			$	181,003		$	63,048
	Certificate of deposit				100			—
	Investment securities available for sale, at fair value (with amortized cost of $362,629 in 2001 and $500,296 in 2000)				357,464			488,290
	Loans receivable, net of allowance for loan losses of $25,827 in 2001 and $23,848 in 2000 (Note 5)				1,948,281			1,789,988
	Investment in Federal Home Loan Bank stock, at cost				8,707			14,845
	Other real estate owned				87			801
	Investments in affordable housing partnerships				20,642			19,676
	Premises and equipment, net				27,622			26,630
	Premiums on deposits acquired, net				10,266			7,696
	Excess of purchase price over fair value of net assets acquired, net				20,429			16,497
	Accrued interest receivable and other assets				51,920			47,993
	Deferred tax assets				3,230			10,507
		TOTAL		$	2,629,751		$	2,485,971
LIABILITIES AND STOCKHOLDERS' EQUITY
	Customer deposit accounts:
		Noninterest-bearing		$	378,805		$	201,456
		Interest-bearing			1,913,711			1,747,106
			Total deposits		2,292,516			1,948,562
	Short-term borrowings				7,000			38,000
	Federal Home Loan Bank advances				69,000			268,000
	Notes payable				900			—
	Accrued expenses and other liabilities				20,990			22,897
	Junior subordinated debt securities				20,750			20,750
			Total liabilities		2,411,156			2,298,209
FAIR VALUE OF NET ASSETS ACQUIRED IN EXCESS OF PURCHASE PRICE, NET					1,405			1,613
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock (par value of $0.001 per share)
	Authorized—50,000,000 shares
	Issued—25,240,228 shares and 24,508,331 shares in 2001 and 2000, respectively
	Outstanding—23,085,090 shares and 22,660,590 shares in 2001 and 2000, respectively				25			25
Additional paid in capital					133,728			118,039
Retained earnings					117,878			99,764
Deferred compensation					(1,161	)		(1,344	)
Treasury stock, at cost: 2,155,138 shares in 2001 and 1,847,741 shares in 2000					(30,132	)		(23,060	)
Accumulated other comprehensive loss, net of tax					(3,148	)		(7,275	)
			Total stockholders' equity		217,190			186,149
			TOTAL	$	2,629,751		$	2,485,971

See accompanying notes to interim consolidated financial statements.

3

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

			Three Months Ended June 30,					Six Months Ended June 30,
			2001		2000			2001			2000
INTEREST AND DIVIDEND INCOME
	Loans receivable, including fees		$	39,581	$	37,667		$	80,473		$	73,043
	Investment securities available for sale			5,901		7,824			13,783			16,141
	Short-term investments			889		45			1,236			209
	Federal Home Loan Bank stock			175		584			424			968
		Total interest and dividend income		46,546		46,120			95,916			90,361
INTEREST EXPENSE
	Customer deposit accounts			20,194		17,709			41,846			32,819
	Short-term borrowings			422		595			1,007			770
	Federal Home Loan Bank advances			904		5,174			3,946			12,116
	Junior subordinated debt securities			566		291			1,138			321
		Total interest expense		22,086		23,769			47,937			46,026
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES				24,460		22,351			47,979			44,335
PROVISION FOR LOAN LOSSES				1,500		1,400			2,217			2,800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES				22,960		20,951			45,762			41,535
NONINTEREST INCOME
	Loan fees			1,139		430			1,880			958
	Branch fees			1,344		1,260			2,612			2,476
	Letters of credit fees and commissions			1,017		1,080			2,088			2,162
	Net gain on sales of loans			423		—			750			—
	Net gain on sales of investment securities available for sale			166		—			1,658			261
	Net gain (loss) on trading securities			—		(14	)		414			48
	Net gain on sales of affordable housing partnerships			—		—			—			905
	Amortization of fair value of net assets acquired in excess of purchase price			104		104			208			208
	Other operating income			936		609			1,927			844
		Total noninterest income		5,129		3,469			11,537			7,862
NONINTEREST EXPENSE
	Compensation and employee benefits			5,871		5,078			12,296			9,671
	Net occupancy			2,406		1,926			4,774			3,706
	Data processing			433		479			889			921
	Amortization of premiums on deposits acquired and excess of purchase price over fair value of net assets acquired			993		842			2,069			1,622
	Amortization of investments in affordable housing partnerships			968		991			2,034			1,956
	Deposit insurance premiums and regulatory assessments			132		124			266			220
	Other real estate owned operations, net			9		(37	)		33			(7	)
	Other operating expenses			4,091		2,774			7,935			5,822
		Total noninterest expense		14,903		12,177			30,296			23,911
INCOME BEFORE PROVISION FOR INCOME TAXES				13,186		12,243			27,003			25,486
PROVISION FOR INCOME TAXES				3,497		3,879			7,416			8,409
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				9,689		8,364			19,587			17,077
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX				—		—			(87	)		—
NET INCOME			$	9,689	$	8,364		$	19,500		$	17,077
BASIC EARNINGS PER SHARE, BEFORE AND AFTER CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX			$	0.42	$	0.37		$	0.85		$	0.76
DILUTED EARNINGS PER SHARE, BEFORE AND AFTER CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX			$	0.41	$	0.37		$	0.81		$	0.75
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC				22,828		22,363			23,019			22,347
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED				23,823		22,822			24,049			22,752

See accompanying notes to interim consolidated financial statements.

4

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

		Common Stock		Additional Paid-In Capital		Retained Earnings			Deferred Compensation			Treasury Stock			Accumulated Other Comprehensive Gain (Loss), Net of Tax			Comprehensive Income		Total Stockholders' Equity
BALANCE, JANUARY 1, 2000		$	24	$	111,306	$	67,001		$	(863	)	$	(14,659	)	$	(12,729	)			$	150,080
Comprehensive income
	Net income for the year						35,467											$	35,467		35,467
	Net unrealized gain on securities															5,454			5,454		5,454
Comprehensive income																		$	40,921
Stock compensation cost					16					405											421
Tax benefit from option exercise					55																55
Issuance of 16,444 shares under Stock Option Plan					164																164
Issuance of 1,500 shares under Restricted Stock Plan					18					(18	)										—
Issuance of 53,584 shares under Employee Stock Purchase Plan					496																496
Issuance of 424,781 shares under Stock Warrants Plan			1		4,247																4,248
Issuance of 103,291shares for acquisition of Risk Services, Inc.					1,737					(868	)										869
Purchase of 361,878 shares of treasury stock													(8,401	)							(8,401	)
Dividends paid on common stock							(2,704	)													(2,704	)
BALANCE, DECEMBER 31, 2000		$	25	$	118,039	$	99,764		$	(1,344	)	$	(23,060	)	$	(7,275	)			$	186,149
Comprehensive income
	Net income for the period						19,500											$	19,500		19,500
	Net unrealized gain on securities															4,127			4,127		4,127
Comprehensive income																		$	23,627
Stock compensation cost					22					183											205
Tax benefit from option exercise					1,097																1,097
Issuance of 186,673 shares under Stock Option Plan					1,871																1,871
Issuance of 18,631 shares under Employee Stock Purchase Plan					300																300
Issuance of 13,886 shares under Stock Warrants Plan					139																139
Issuance of 512,707 shares for acquisition of Prime Bank					12,260																12,260
Purchase of 307,397 shares of treasury stock													(7,072	)							(7,072	)
Dividends paid on common stock							(1,386	)													(1,386	)
BALANCE, JUNE 30, 2001		$	25	$	133,728	$	117,878		$	(1,161	)	$	(30,132	)	$	(3,148	)			$	217,190

	Six Months Ended June 30, 2001			Year Ended December 31, 2000
	(In thousands)
Disclosure of reclassification amount:
Unrealized holding gain arising during period, net of tax expense of $3,414 in 2001 and $3,685 in 2000	$	5,122		$	5,528
Less: Reclassification adjustment for gain included in net income, net of tax expense of $663 in 2001 and $49 in 2000		(995	)		(74	)
Net unrealized gain on securities, net of tax expense of $2,751 in 2001 and $3,636 in 2000	$	4,127		$	5,454

See accompanying notes to interim consolidated financial statements.

5

EAST WEST BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

					Six Months Ended June 30,
					2001			2000
					(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	19,500		$	17,077
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				4,982			4,263
		Net loan fees deferred				298			350
		Stock compensation costs				205			228
		Deferred tax provision (benefit)				959			(1,710	)
		Provision for loan losses				2,217			2,800
		Provision for other real estate owned losses				33			—
		Net gain on sales of investment securities, loans and other assets				(2,712	)		(1,249	)
		Net gain on trading securities				(414	)		(48	)
		Federal Home Loan Bank stock dividends				(523	)		(962	)
		Proceeds from sale of securitized loans				13,603			—
		Proceeds from sale of loans held for sale				21,347			6,157
		Originations of loans held for sale				(31,801	)		(6,078	)
		Net change in accrued interest receivable and other assets, net of effects from purchases of American International Bank in 2000 and Prime Bank in 2001				808			(7,552	)
		Net change in accrued expenses and other liabilities, net of effects from purchases of American International Bank in 2000 and Prime Bank in 2001				(831	)		990
			Total adjustments			8,171			(2,811	)
				Net cash provided by operating activities		27,671			14,266
CASH FLOWS FROM INVESTING ACTIVITIES:
	Net paydown in loans					(81,685	)		(46,600	)
	Purchases of:
		Interest bearing deposits in banks				—			(100	)
		Investment securities available for sale				(29,972	)		(94,957	)
		Loans receivable				(104,769	)		(126,693	)
		Federal Home Loan Bank stock				—			(1,326	)
		Investments in affordable housing partnerships				(3,000	)		(5,544	)
		Premises and equipment				(2,321	)		(6,262	)
	Proceeds from sale of:
		Investment securities available for sale				134,955			64,639
		Loans receivable				67,521			—
		Other real estate owned				694			47
		Investments in affordable housing partnerships				—			6,948
		Premises and equipment				754			—
	Repayments, maturity and redemption of investment securities available for sale					71,315			35,249
	Redemption of Federal Home Loan Bank stock					6,661			7,908
	Repayments on foreclosed properties					—			13
	Payment for purchase of First Central Bank, net of cash received								(369	)
	Payment for purchase of American International Bank, net of cash received					—			(25,218	)
	Cash acquired from purchase of Prime Bank, net of cash paid					20,398			—
				Net cash provided by (used in) investing activities		80,551			(192,265	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net change in deposits					245,881			312,550
	Net increase (decrease) in short-term borrowings					(31,000	)		37,400
	Proceeds from Federal Home Loan Bank advances					2,834,500			11,910,400
	Repayment of Federal Home Loan Bank advances					(3,033,500	)		(12,081,900	)
	Proceeds from issuance of junior subordinated debt securities					—			10,750
	Repayment of notes payable on affordable housing investments					—			(1,250	)
	Proceeds from common stock options exercised					1,871			322
	Proceeds from stock warrants exercised					139			—
	Proceeds from employee stock purchase plan					300			—
	Repurchases of common stock					—			(75	)
	Purchase and retirement of common stock					(7,072	)		—
	Dividends paid on common stock					(1,386	)		(1,347	)
				Net cash provided by financing activities		9,733			186,850
NET INCREASE IN CASH AND CASH EQUIVALENTS						117,955			8,851
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD						63,048			43,497
CASH AND CASH EQUIVALENTS, END OF PERIOD					$	181,003		$	52,348
SUPPLEMENTAL CASH FLOW INFORMATION:
	Interest paid				$	50,637		$	46,198
	Income tax payments, net					1,539			10,729
	Noncash investing and financing activities:
		Other real estate acquired through foreclosure				—			311
		Loans exchanged for mortgage-backed securities				13,302			—
		Real Estate investment financed through notes payable				900			—
		Issuance of common stock in connection with the acquisition of Prime Bank				12,260			—

See accompanying notes to interim consolidated financial statements.

6

EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2001 and 2000
(Unaudited)

1.  BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of East West Bancorp, Inc. (the "Company") and its wholly owned subsidiaries, East West Bank and subsidiaries (the "Bank") and Risk Services, Inc. Intercompany transactions and accounts have been eliminated in consolidation.

    The interim 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 period ended June 30, 2001 are not necessarily indicative of results which 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. The unaudited 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 10K for the year ended December 31, 2000.

    Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.

2.  ACCOUNTING CHANGE

    Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income ("OCI") and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

    The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative pre-tax reduction to income of $149 thousand ($87 thousand after-tax) as a result of the fair valuation of two interest rate swap agreements with a combined notional amount of $30.0 million. These swap agreements were hedged against fixed rate brokered certificates of deposit totaling $30.0 million. Pursuant to the adoption of SFAS No. 133, the Company records these interest rate swap agreements at their estimated fair values, with resulting gains or losses recorded in current earnings. For the six months ended June 30, 2001, the total amount of net gains recorded in current earnings amounted to $215 thousand. No interest rate swap agreements were outstanding at June 30, 2001.

3.  OTHER DERIVATIVES

    The Company has also entered into interest rate cap agreements which are primarily linked to the three-month LIBOR. Prior to October 1, 1999, the Company used interest rate caps for purposes of hedging against market fluctuations in the Bank's available-for-sale securities portfolio. Due to the

7

volatility of the correlation between the Treasury yield curve and fixed rate mortgage-backed securities, the Company ceased using interest rate caps to hedge against fluctuations in the investment securities available for sale portfolio, effective October��1, 1999. The Company continues to record these interest rate caps at their estimated fair values, with resulting gains or losses recorded in current earnings. The unrealized gains and losses reflected in accumulated other comprehensive income (loss) in stockholders' equity as of September 30, 1999 are amortized into interest income or expense over the expected remaining lives of these interest rate cap agreements.

    At June 30, 2001, the Company also has outstanding warrants to purchase common stock of various companies. The warrants were received by the Company in connection with certain lending relationships. The fair value of the warrants, if any, are not deemed to be material at June 30, 2001.

4.  ACQUISITION OF PRIME BANK

    On January 16, 2001, the Company completed its acquisition of Prime Bank in a combination of shares and cash valued at $16.6 million. The acquisition was accounted for under the purchase method of accounting, and accordingly, all assets and liabilities of Prime Bank were adjusted to and recorded at their estimated fair values as of the acquisition date. The estimated tax effect of differences between tax bases and market values has been reflected in deferred income taxes. The Company recorded total goodwill of approximately $5.6 million and core deposit premium of $3.9 million, which are being amortized using the straight-line method over 15 years and 7 years, respectively. At December 31, 2000, Prime Bank had total assets of $128.4 million and total stockholders' equity of $9.0 million. Proforma results of operations are not presented since the acquisition is not considered material to the Company's results of operations or financial position.

5.  LOANS HELD FOR SALE

    Loans held for sale were $11.2 million and $1.1 million at June 30, 2001 and December 31, 2000, respectively. Loans held for sale are recorded at the lower of cost or market.

6.  COMMITMENTS AND CONTINGENCIES

    Credit Extensions—In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying interim consolidated financial statements. As of June 30, 2001, undisbursed loan commitments, commercial and standby letters of credit, and commitments to fund mortgage loan applications in process amounted to $378.4 million, $174.3 million, and $98.9 million, respectively.

    Litigation—The Company is a party to various legal proceedings arising in the normal course of business. While it is difficult to predict the outcome of such litigation, the Company does not expect that such litigation will have a material adverse effect on its financial position and results of operations.

    Regulated Investment Company—The Company realizes state tax benefits through East West Securities Company, Inc., a regulated investment company formed and funded in July 2000. The continued realization of state tax benefits through this entity is dependent on its continuing qualification as a registered investment company under the Investment Company Act of 1940, as amended.

7.  STOCKHOLDERS' EQUITY

    Earnings Per Share—The actual number of shares outstanding at June 30, 2001, was 23,085,090. Basic earnings per share are calculated on the basis of the weighted average number of shares outstanding during the period. Diluted earnings per share are calculated on the basis of the weighted

8

average number of shares outstanding during the period plus shares issuable upon the assumed exercise of outstanding common stock options and warrants.

    The following tables set forth the Company's earnings per share calculations for the three and six months ended June 30, 2001 and 2000:

		Three Months Ended June 30,
		2001					2000
		Net Income		Number of Shares	Per Share Amounts		Net Income		Number of Shares	Per Share Amounts
Basic earnings per share		$	9,689	22,828	$	0.42	$	8,364	22,363	$	0.37
Effect of dilutive securities:
	Stock options		—	927				—	338
	Restricted stock		—	48				—	28
	Stock warrants		—	20				—	93
Dilutive earnings per share		$	9,689	23,823	$	0.41	$	8,364	22,822	$	0.37

		Six Months Ended June 30,
		2001					2000
		Net Income		Number of Shares	Per Share Amounts		Net Income		Number of Shares	Per Share Amounts
Basic earnings per share		$	19,500	23,019	$	0.85	$	17,077	22,347	$	0.76
Effect of dilutive securities:
	Stock options		—	962				—	300
	Restricted stock		—	46				—	23
	Stock warrants		—	22				—	82
Dilutive earnings per share		$	19,500	24,049	$	0.81	$	17,077	22,752	$	0.75

    Quarterly Dividends—The Company's Board of Directors declared and paid a quarterly common stock cash dividend of $0.03 per share payable on February 14, 2001 to shareholders of record on February 1, 2001. On April 26, 2001, the Company declared and paid another quarterly common stock cash dividend of $0.03 per share payable on May 16, 2001 to shareholders of record on May 4, 2001. For the first half of 2001, cash dividends totaling $1.4 million have been paid to the Company's shareholders.

8.  BUSINESS SEGMENTS

    Management utilizes an internal reporting system to measure the performance of various operating segments within the Company and the Company overall. Four principal operating segments have been identified by the Company for purposes of management reporting: retail banking, commercial lending, treasury, and residential lending. Information related to the Company's remaining centralized functions and eliminations of intersegment amounts have been aggregated and included in "Other." Although all four operating segments offer financial products and services, they are managed separately based on each segment's strategic focus. While the retail banking segment focuses primarily on retail operations through the Company's branch network, certain designated branches have responsibility for generating commercial deposits and loans. The commercial lending segment primarily generates commercial loans and deposits through the efforts of commercial lending officers located in the Company's northern and southern California production offices. The treasury department's primary focus is managing the Company's investments, liquidity, and interest rate risk; the residential lending segment is mainly responsible for the Company's portfolio of single family and multifamily residential loans.

9

    Operating segment results are based on the Company's internal management reporting process, which reflects assignments and allocations of capital, certain operating and administrative costs and the provision for loan losses. Net interest income is based on the Company's internal funds transfer pricing system which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. Noninterest income and noninterest expense, including depreciation and amortization, directly attributable to a segment are assigned to that business. Indirect costs, including overhead expense, are allocated to the segments based on several factors, including, but not limited to, full-time equivalent employees, loan volume and deposit volume. The provision for credit losses is allocated based on new loan originations for the period. The Company evaluates overall performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses.

    Future changes in the Company's management structure or reporting methodologies may result in changes in the measurement of operating segment results. Results for prior periods have been restated for comparability for changes in management structure or reporting methodologies.

    The following tables present the operating results and other key financial measures for the individual operating segments for the three and six months ended June 30, 2001 and 2000:

			Three Months Ended June 30, 2001
			Retail Banking			Commercial Lending			Treasury			Residential Lending			Other			Total
			(In thousands)
Interest income			$	15,252		$	12,906		$	6,965		$	10,055		$	1,368		$	46,546
Charge for funds used				(9,066	)		(8,105	)		(6,235	)		(6,956	)		(170	)		(30,532	)
	Interest spread on funds used			6,186			4,801			730			3,099			1,198			16,014
Interest expense				(15,726	)		(830	)		(5,530	)		—			—			(22,086	)
Credit on funds provided				22,459			1,526			6,547			—			—			30,532
	Interest spread on funds provided			6,733			696			1,017			—			—			8,446
		Net interest income	$	12,919		$	5,497		$	1,747		$	3,099		$	1,198		$	24,460
Depreciation and amortization			$	1,316		$	204		$	(40	)	$	154		$	729		$	2,363
Segment pretax profit			$	4,253		$	3,213		$	1,447		$	2,480		$	1,793		$	13,186
Segment assets as of June 30, 2001			$	740,775		$	696,939		$	481,276		$	511,358		$	199,403		$	2,629,751

			Three Months Ended June 30, 2000
			Retail Banking			Commercial Lending			Treasury			Residential Lending			Other			Total
			(In thousands)
Interest income			$	13,652		$	13,869		$	8,426		$	9,643		$	530		$	46,120
Charge for funds used				(9,302	)		(10,089	)		(7,970	)		(8,222	)		(106	)		(35,689	)
	Interest spread on funds used			4,350			3,780			456			1,421			424			10,431
Interest expense				(12,756	)		(1,356	)		(9,657	)		—			—			(23,769	)
Credit on funds provided				22,083			2,536			11,070			—			—			35,689
	Interest spread on funds provided			9,327			1,180			1,413			—			—			11,920
		Net interest income	$	13,677		$	4,960		$	1,869		$	1,421		$	424		$	22,351
Depreciation and amortization			$	950		$	130		$	76		$	144		$	969		$	2,269
Segment pretax profit			$	6,343		$	3,245		$	1,348		$	1,090		$	217		$	12,243
Segment assets as of June 30, 2000			$	550,973		$	629,180		$	516,849		$	513,733		$	147,666		$	2,358,401

10

			Six Months Ended June 30, 2001
			Retail Banking			Commercial Lending			Treasury			Residential Lending			Other			Total
			(In thousands)
Interest income			$	29,780		$	27,376		$	15,443		$	20,941		$	2,376		$	95,916
Charge for funds used				(18,510	)		(18,067	)		(14,070	)		(15,431	)		(19	)		(66,097	)
	Interest spread on funds used			11,270			9,309			1,373			5,510			2,357			29,819
Interest expense				(32,076	)		(1,907	)		(13,954	)		—			—			(47,937	)
Credit on funds provided				47,016			3,491			15,590			—			—			66,097
	Interest spread on funds provided			14,940			1,584			1,636			—			—			18,160
		Net interest income	$	26,210		$	10,893		$	3,009		$	5,510		$	2,357		$	47,979
Depreciation and amortization			$	2,712		$	458		$	(33	)	$	127		$	1,718		$	4,982
Segment pretax profit			$	7,318		$	7,618		$	4,521		$	4,366		$	3,180		$	27,003
Segment assets as of June 30, 2001			$	740,775		$	696,939		$	481,276		$	511,358		$	199,403		$	2,629,751

			Six Months Ended June 30, 2000
			Retail Banking			Commercial Lending			Treasury			Residential Lending			Other			Total
			(In thousands)
Interest income			$	25,681		$	27,542		$	17,204		$	18,594		$	1,340		$	90,361
Charge for funds used				(17,326	)		(19,528	)		(16,447	)		(15,542	)		(116	)		(68,959	)
	Interest spread on funds used			8,355			8,014			757			3,052			1,224			21,402
Interest expense				(24,183	)		(2,502	)		(19,341	)		—			—			(46,026	)
Credit on funds provided				41,818			4,824			22,317			—			—			68,959
	Interest spread on funds provided			17,635			2,322			2,976			—			—			22,933
		Net interest income	$	25,990		$	10,336		$	3,733		$	3,052		$	1,224		$	44,335
Depreciation and amortization			$	2,034		$	188		$	235		$	362		$	1,444		$	4,263
Segment pretax profit			$	12,063		$	7,274		$	3,148		$	2,447		$	554		$	25,486
Segment assets as of June 30, 2000			$	550,973		$	629,180		$	516,849		$	513,733		$	147,666		$	2,358,401

9.  RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2001 the Financial Accounting Standards Board approved Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS 142 will result in the Bank's discontinuation of the amortization of positive goodwill effective January 1, 2002. The total expected annual amortization expense for positive goodwill is $3.8 million for 2001. Positive goodwill will continue to be reviewed for impairment on an annual basis. Further, as a consequence of adopting SFAS 142, the expected remaining balance of negative goodwill of $1.4 million at December 31, 2001 will be recorded as extraordinary income effective January 1, 2002. The total expected annual amortization expense for negative goodwill is $94 thousand for 2001.

11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of East West Bancorp, Inc. and its subsidiaries (the "Company"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to the financial condition of the Company and the results of its operations. This discussion and analysis should be read in conjunction with the Company's 2000 annual report on Form 10-K for the year ended December 31, 2000, and the accompanying interim unaudited consolidated financial statements and notes thereto.

    In addition to historical information, this discussion includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which involve inherent risks and uncertainties. A number of important factors could cause the Company's actual results and performance in future periods to differ materially from those discussed in such forward-looking statements. These factors include, but are not limited to, the effect of interest rate and currency exchange fluctuations; competition in the financial services market for both deposits and loans; the Company's ability to efficiently incorporate acquisitions into its operations; the ability of the Company to increase its customer base; and regional and general economic conditions. Given these uncertainties, the reader is cautioned not to place undue reliance on such forward-looking statements. The Company expressly disclaims any obligation to update or revise any forward-looking statements contained herein to reflect any changes in the Company's expectations of results or any change in events.

Results of Operations

    The Company reported second quarter 2001 net income of $9.7 million, or $0.42 per basic share and $0.41 per diluted share, compared with $8.4 million, or $0.37 per basic and diluted share, reported during the second quarter of 2000. The 11% increase in net earnings is primarily attributable to higher net interest income, a lower provision for income taxes, and markedly higher noninterest-related revenues, partially offset by higher operating expenses and provision for loan losses. The Company's annualized return on average total assets increased to 1.50% for the quarter ended June 30, 2001, from 1.43% for the same period in 2000. The annualized return on average stockholders' equity decreased to 18.41% for the second quarter of 2001, compared with 21.18% for the second quarter of 2000.

    Net income for the six months ended June 30, 2001 increased to $19.5 million, or $0.85 per basic share and $0.81 per diluted share, from $17.1 million, or $0.76 per basic share and $0.75 per diluted share, for the first six months of 2000. The annualized return on average total assets increased to 1.53% for the first half of 2001, compared with 1.47% for the first half of 2000. The annualized return on average stockholders' equity increased to 18.94% for the first half of 2001, compared with 22.11% for the same period in 2000.

12

Components of Net Income

		Three Months Ended June 30,						Six Months Ended June 30,
		2001			2000			2001			2000
		(In millions)
Net interest income		$	24.5		$	22.4		$	48.0		$	44.3
Provision for loan losses			(1.5	)		(1.4	)		(2.2	)		(2.8	)
Noninterest income			5.1			3.5			11.5			7.9
Noninterest expense			(14.9	)		(12.2	)		(30.3	)		(23.9	)
Provision for income taxes			(3.5	)		(3.9	)		(7.4	)		(8.4	)
Cumulative effect of change in accounting principle			—			—			(0.1	)		—
	Net income	$	9.7		$	8.4		$	19.5		$	17.1
Annualized return on average total assets			1.50	%		1.43	%		1.53	%		1.47	%

Net Interest Income

    The Bank's primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income for the second quarter of 2001 totaled $24.5 million, a 9% increase over net interest income of $22.4 million for the same period in 2000.

    Total interest and dividend income during the quarter ended June 30, 2001 increased 1% to $46.5 million compared with $46.1 million during the same period in 2000. Year-to-date interest and dividend income increased 6% to $95.9 million, from $90.4 million during the first half of 2000. The increase in interest and dividend income during both the second quarter and the first six months of 2001 is attributable primarily to a 9% growth in average earning assets for both periods, partially offset by lower yields on almost every category of earning assets resulting from the continued decline in overall interest rates. Growth in the Bank's average loan and short-term investments portfolio, partially offset by decreases in investment securities and FHLB stock, triggered the growth in average earning assets. The net growth in average earning assets was funded largely by increases in time deposits, noninterest-bearing demand deposits, interest-bearing checking accounts, and money market accounts.

    Total interest expense during the second quarter of 2001 decreased 7% to $22.1 million compared with $23.8 million for the same period a year ago. On the contrary, total interest expense increased 4% to $47.9 million for the first half of 2001, from $46.0 million for the first half of 2000. The decrease in interest expense during the second quarter of 2001 is primarily attributable to lower volume and rates paid on FHLB advances. Despite a decline in overall interest rates, interest expense increased during the first half of 2001 primarily due to a lag in the repricing of the Company's time deposits combined with a marked increase in the volume of average time deposits.

    Net interest margin, defined as taxable equivalent net interest income divided by average earning assets, increased 2 basis points to 4.05% for the second quarter of 2001, compared with 4.03% for the second quarter of 2000. For the first six months of 2001, the Company's net interest margin decreased 2 basis points to 4.00%, from 4.02% for the same period a year ago. Overall yields on earning assets are significantly lower during the quarter and six months ended June 30, 2001, when compared to the same periods in the prior year, primarily due to several progressive declines in interest rates since the beginning of the year. The impact is most acute during the second quarter of 2001, which evidenced a 59 basis point decline in the Company's overall yield on earning assets to 7.72%, compared to 8.31% for the second quarter of 2000. Similarly, the overall yield on average earning assets for the first half of 2001 declined 19 basis points to 8.00%, compared to 8.19% for the same period a year ago. The

13

Company's cost of funds for the second quarter of 2001 also decreased 42 basis points to 4.39% in response to the declining interest rate environment, compared to 4.81% for the second quarter of 2000. For the six months ended June 30, 2001, however, the Company's cost of funds increased 7 basis points to 4.73%, compared to 4.66% for the first half of 2000. This is primarily due to the lag in the repricing of the Company's substantial portfolio of time deposits. The unfavorable impact of declining rates on the Company's net interest margin has been mitigated by the continued usage of noninterest demand deposits as a significant funding source. The 9% increase in average earning assets, predominantly due to loan growth, has also been instrumental in stabilizing the Company's net interest margin in the midst of declining interest rates. The Company expects its net interest margin to increase in the near future as its significant portfolio of time deposits continues to reprice and adjust to the downward trend in interest rates.

14

    The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and the average yields and rates by asset and liability component for the three months ended June 30, 2001 and 2000:

			Three Months Ended June 30,
			2001							2000
			Average Balance			Interest		Average Yield Rate(1)		Average Balance			Interest		Average Yield Rate(1)
			(Dollars in thousands)
ASSETS
Interest-earning assets:
	Short-term investments		$	79,058		$	889	4.50	%	$	1,968		$	45	8.94	%
	Taxable investment securities(2)(3)			397,650			5,901	5.94	%		500,491			7,824	6.25	%
	Loans receivable(2)(4)			1,925,723			39,581	8.22	%		1,695,101			37,667	8.89	%
	FHLB stock			10,749			175	6.51	%		23,473			584	9.95	%
		Total interest-earning assets		2,413,180			46,546	7.72	%		2,221,033			46,120	8.31	%
Noninterest-earning assets:
	Cash and due from banks			53,514							48,693
	Allowance for loan losses			(25,840	)						(24,345	)
	Other assets			139,761							95,943
	Total assets		$	2,580,615						$	2,341,324
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
	Checking accounts			154,787			568	1.47	%		109,379			330	1.21	%
	Money market accounts			143,784			1,091	3.04	%		110,838			1,109	4.00	%
	Savings deposits			211,666			700	1.32	%		218,299			912	1.67	%
	Time deposits			1,384,343			17,835	5.15	%		1,163,452			15,358	5.28	%
	Short-term borrowings			34,341			422	4.92	%		37,071			595	6.42	%
	FHLB advances			62,890			904	5.75	%		329,314			5,174	6.28	%
	Junior subordinated debt securities			20,750			566	10.91	%		10,750			291	10.88	%
		Total interest-bearing liabilities		2,012,561			22,086	4.39	%		1,979,103			23,769	4.81	%
Noninterest-bearing liabilities
	Demand deposits			313,211							179,128
	Other liabilities			44,276							25,123
Stockholders' equity				210,567							157,970
	Total liabilities and stockholders' equity		$	2,580,615						$	2,341,324
Interest rate spread								3.33	%						3.50	%
Net interest income and net interest margin						$	24,460	4.05	%				$	22,351	4.03	%

(1)

Annualized

(2)

Includes amortization of premiums and accretion of discounts on investment securities and loans receivable. Also includes the amortization of deferred loan fees.

(3)

Average balances exclude unrealized gains or losses on available for sale securities.

(4)

Average balances include nonperforming loans.

15

    The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and the average yields and rates by asset and liability component for the six months ended June 30, 2001 and 2000:

			Six Months Ended June 30,
			2001							2000
			Average Balance			Interest		Average Yield Rate(1)		Average Balance			Interest		Average Yield Rate(1)
			(Dollars in thousands)
ASSETS
Interest-earning assets:
	Short-term investments		$	46,421		$	1,236	5.33	%	$	5,413		$	209	7.65	%
	Taxable investment securities(2)(3)			443,997			13,783	6.21	%		521,893			16,141	6.19	%
	Loans receivable(2)(4)			1,895,590			80,473	8.49	%		1,654,270			73,043	8.83	%
	FHLB stock			12,875			424	6.59	%		25,739			968	7.52	%
		Total interest-earning assets		2,398,883			95,916	8.00	%		2,207,315			90,361	8.19	%
Noninterest-earning assets:
	Cash and due from banks			52,784							49,836
	Allowance for loan losses			(25,392	)						(23,695	)
	Other assets			128,222							96,932
		Total assets	$	2,554,497						$	2,330,388
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
	Checking accounts			142,291			1,095	1.54	%		106,690			658	1.23	%
	Money market accounts			132,040			2,228	3.37	%		101,508			1,734	3.42	%
	Savings deposits			207,981			1,487	1.43	%		219,326			2,082	1.90	%
	Time deposits			1,356,367			37,036	5.46	%		1,115,265			28,345	5.08	%
	Short-term borrowings			37,873			1,007	5.32	%		24,037			770	6.41	%
	FHLB advances			130,624			3,946	6.04	%		402,583			12,116	6.02	%
	Junior subordinated debt securities			20,750			1,138	10.97	%		5,917			321	10.88	%
		Total interest-bearing liabilities		2,027,926			47,937	4.73	%		1,975,326			46,026	4.66	%
Noninterest-bearing liabilities
	Demand deposits			282,031							177,872
	Other liabilities			38,585							22,688
	Stockholders' equity			205,955							154,502
		Total liabilities and stockholders' equity	$	2,554,497						$	2,330,388
Interest rate spread								3.27	%						3.53	%
Net interest income and net interest margin						$	47,979	4.00	%				$	44,335	4.02	%

(1)

Annualized

(2)

Includes amortization of premiums and accretion of discounts on investment securities and loans receivable. Also includes the amortization of deferred loan fees.

(3)

Average balances exclude unrealized gains or losses on available for sale securities.

(4)

Average balances include nonperforming loans.

16

Analysis of Changes in Net Interest Margin

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

		Three Months Ended June 30, 2001 vs 2000									Six Months Ended June 30, 2001 vs 2000
					Changes Due to									Changes Due to
		Total Change									Total Change
					Volume(1)			Rates(1)						Volume(1)			Rates(1)
		(In thousands)									(In thousands)
INTEREST-EARNINGS ASSETS:
Short-term investments		$	844		$	855		$	(11	)	$	1,027		$	1,071		$	(44	)
Taxable investment securities			(1,923	)		(1,542	)		(381	)		(2,358	)		(2,418	)		60
Loans receivable, net			1,914			4,267			(2,353	)		7,430			10,097			(2,667	)
FHLB stock			(409	)		(250	)		(159	)		(544	)		(436	)		(108	)
	Total interest and dividend income	$	426		$	3,330		$	(2,904	)	$	5,555		$	8,314		$	(2,759	)
INTEREST-BEARING LIABILITIES:
Checking accounts		$	238		$	156		$	82		$	437		$	251		$	186
Money market accounts			(18	)		(96	)		78			494			515			(21	)
Savings deposits			(212	)		(27	)		(185	)		(595	)		(103	)		(492	)
Time deposits			2,477			2,836			(359	)		8,691			6,467			2,224
Short-term borrowings			(173	)		(41	)		(132	)		237			336			(99	)
FHLB advances			(4,270	)		(3,864	)		(406	)		(8,170	)		(8,216	)		46
Junior subordinated debt securities			275			273			2			817			813			4
	Total interest expense	$	(1,683	)	$	(763	)	$	(920	)	$	1,911		$	63		$	1,848
CHANGE IN NET INTEREST INCOME		$	2,109		$	4,093		$	(1,984	)	$	3,644		$	8,251		$	(4,607	)

(1)

Changes in interest income/expense not arising from volume or rate variances are allocated proportionately to rate and volume.

Provision for Loan Losses

    The provision for loan losses amounted to $1.5 million for the second quarter of 2001 compared to $1.4 million for the same period in 2000. For the first six months of 2001, the provision for loan losses totaled $2.2 million, compared to $2.8 million for the same period in 2000. Provisions for loan losses are charged to income to bring the allowance for credit losses to a level deemed appropriate by management based on the factors discussed under the "Allowance for Loan Losses" section of this report.

17

Noninterest Income

Components of Noninterest Income

		Three Months Ended June 30,					Six Months Ended June 30,
		2001		2000			2001		2000
		(In millions)
Loan ancillary fees		$	1.14	$	0.43		$	1.88	$	0.96
Branch fees			1.34		1.26			2.61		2.48
Letters of credit fees and commissions			1.02		1.08			2.09		2.16
Net gain on sales of loans			0.42		—			0.75		—
Net gain on sales of investment securities available for sale			0.17		—			1.66		0.26
Net gain on trading securities			—		(0.01	)		0.41		0.05
Net gain on sale of affordable housing investments			—		—			—		0.90
Amortization of negative intangibles			0.10		0.10			0.21		0.21
Other			0.94		0.61			1.93		0.84
	Total	$	5.13	$	3.47		$	11.54	$	7.86

    Noninterest income includes revenues earned from sources other than interest income. These sources include: ancillary fees on loans, service charges and fees on deposit accounts, fees and commissions generated from trade finance activities and the issuance of letters of credit, net gains on sales of loans, net gains on trading securities, and net gains on sales of investment securities available for sale and affordable housing investments.

    Noninterest income increased 48% to $5.1 million during the three months ended June 30, 2001 primarily due to higher loan fees, net gain on sales of loans and net gain on sales of available for sale securities. Included in noninterest income for the second quarter of 2001 are $423 thousand in gains on sales of loans and $166 thousand in net gains on sales of investment securities available for sale. There were no such gains recorded during the same period in 2000. Noninterest income for the first half of 2001 increased 47% to $11.5 million, from $7.9 million for the first half of 2000, primarily due to higher loan fees, net gains on sales of loans and available for sale securities, net gain on trading securities and other noninterest-related revenues. Partially offsetting these increases to noninterest income during the first six months of 2001 is the absence of gains on sales of affordable housing investments, compared to $905 thousand in such gains recorded during the corresponding period in 2000.

    Ancillary fees on loans include fees and service charges related to appraisal services, loan documentation, processing and underwriting, and secondary market-related activities. Ancillary loan fees increased 165% to $1.1 million during the second quarter of 2001, compared to $430 thousand for the same period in 2000. For the first half of 2001, ancillary loan fee income increased 96% to $1.9 million, from $958 thousand for the first half of 2000. The increase in ancillary loan fees is primarily due to a significant increase in residential mortgage and commercial loan origination activity during the second quarter and first six months of 2001 in comparison to the same periods in 2000.

    Other contributions to noninterest income include other operating income, which includes insurance commissions and insurance-related service fees, interest earned on officer life insurance policies, branch rental income, and income from operating leases. Other operating income increased to $936 thousand, or 54%, during the second quarter of 2001, from $609 thousand recorded during the second quarter of 2000. For the six months ended June 30, 2001, other operating income increased to $1.9 million, or 128%, from $844 thousand recorded during the first half of 2000. The increase in noninterest income is primarily due to insurance commissions and other insurance-related service fee income totaling $252 thousand and $495 thousand for the second quarter and first half of 2001,

18

respectively, resulting from the acquisition of Risk Services, Inc. in August 2000. There were no such commissions and service fee income recorded during the corresponding periods in 2000. In addition, the Company also recorded interest income on officer life insurance policies totaling $336 thousand and $646 thousand for the second quarter and first half of 2001, respectively, compared to $150 thousand and $285 thousand earned during the same periods in 2000. At June 30, 2001, the aggregate cash surrender value of the Company's officer life insurance policies amounted to $26.1 million compared to $22.9 million at December 31, 2000. Further contributing to other noninterest income are revenues from equipment leased totaling $178 thousand and $415 thousand during the second quarter and first six months of 2001, respectively. These revenues represent income from equipment leased to third parties in connection with $2.1 million in operating leases entered into by the Company. In comparison, the Company recorded $129 thousand in leased equipment revenues for both the second quarter and first half of 2000.

Noninterest Expense

Components of Noninterest Expense

		Three Months Ended June 30,						Six Months Ended June 30,
		2001			2000			2001			2000
		(In millions)
Compensation and other employee benefits		$	5.87		$	5.08		$	12.30		$	9.67
Net occupancy			2.41			1.93			4.77			3.71
Amortization of positive intangibles			0.99			0.84			2.07			1.62
Amortization of affordable housing investments			0.97			0.99			2.03			1.96
Data processing			0.43			0.48			0.89			0.92
Deposit insurance premiums and regulatory assessments			0.13			0.12			0.27			0.22
Other real estate owned operations, net			0.01			(0.03	)		0.03			(0.01	)
Other			4.09			2.77			7.94			5.82
	Total	$	14.90		$	12.18		$	30.30		$	23.91
	Efficiency Ratio(1)		44	%		40	%		44	%		39	%

(1)

Excludes the amortization of intangibles and investments in affordable housing partnerships.

    Noninterest expense, which is comprised primarily of compensation and employee benefits, occupancy and other operating expenses increased 22% to $14.9 million during the second quarter of 2001, from $12.2 million for the same period in 2000. Noninterest expense for the six months ended June 30, 2001 increased 27% to $30.3 million, compared to $23.9 million for the first half of 2000.

    Compensation and employee benefits increased 16% to $5.9 million during the second quarter of 2001, compared to $5.1 million for the same period last year. For the first half of 2001, compensation and employee benefits increased 27% to $12.3 million, compared to $9.7 million for the same period in 2000. The rise in compensation and employee benefits is primarily due to the acquisition of Prime Bank in mid-January 2001 and the Company's continued investment in its operating infrastructure, predominantly in the lending area.

    Occupancy expenses increased 25% to $2.4 million during the second quarter of 2001, compared to $1.9 million for the same period in 2000. For the first six months of 2001, occupancy expenses increased 29% to $4.8 million, from $3.7 million for the same period in 2000. The increase in occupancy expenses reflects the operations for the Century City, California branch location of Prime Bank, additional depreciation from equipment under operating leases, and increased rent expense attributed to the Company's new Oakland and Milbrae, California branch locations. These are

19

overhead factors which were not present during the second quarter and first six months of 2000. Additionally, the impact of normal rent adjustments in existing leases further contributed to the rise in occupancy expenses.

    The amortization of positive intangibles, which include premiums on deposits acquired and excess of purchase price over fair value of net assets acquired ("goodwill"), increased 18% to $993 thousand during the second quarter of 2001, compared to $842 thousand for the second quarter of 2000. For the six months ended June 30, 2001, the amortization of positive intangibles increased 28% to $2.1 million, from $1.6 million for the same period a year ago. The increase in the amortization of positive intangibles is primarily due to the acquisition of Prime Bank. Goodwill of $5.6 million and deposit premium of $3.9 million were recorded by the Company for this transaction which are being amortized straight line over 15 and 7 years, respectively.

    Deposit insurance premiums and regulatory assessments increased 6% to $132 thousand for the three months ended June 30, 2001, compared with $124 thousand for the same period in 2000. For the six months ended June 30, 2001, deposit insurance premiums and regulatory assessments increased 21% to $266 thousand, compared with $220 thousand for the same period in 2000. Although there was a decrease in the Savings Association Insurance Fund ("SAIF") annualized Financing Corporation ("FICO") assessment rate to 1.96 basis points and 1.90 basis points for the first and second quarter of 2001, respectively, from 2.12 basis points and 2.08 basis points for the same periods in 2000, deposit insurance premiums increased during the three and six months ended June 30, 2001 as a result of the significant growth in the Bank's assessable deposit base.

    Other operating expenses include advertising and public relations, telephone and postage, stationery and supplies, bank and item processing charges, insurance, legal and other professional fees. Other operating expenses increased 48% to $4.1 million during the three months ended June 30, 2001, compared with $2.8 million for the same period in 2000. For the six months ended June 30, 2001, other operating expenses increased 36% to $7.9 million, from $5.8 million for the first half of 2000. The increase in other operating expenses is due primarily to the Company's continued expansion, which includes the recent acquisition of Prime Bank as well as its significant investment in its operating infrastructure.

    The Company's efficiency ratio, which represents noninterest expense (excluding the amortization of intangibles and investments in affordable housing partnerships) divided by the aggregate of net interest income before provision for loan losses and noninterest income (excluding the amortization of intangibles), increased to 44% for the quarter ended June 30, 2001, compared to 40% for the corresponding period in 2000. For the first half of 2001, the Company's efficiency ratio increased to 44% from 39% for the same period a year ago. The increase in efficiency ratio is primarily due to the acquisition of Prime Bank and the Company's continued investment in its operating infrastructure. Management anticipates the Company's efficiency ratio to remain in the low to mid 40% range for the remainder of the year.

Provision for Income Taxes

    The provision for income taxes decreased 10% to $3.5 million for the second quarter of 2001, compared with $3.9 million for the same period in 2000. For the six months ended June 30, 2001, the provision for income taxes totaled $7.4 million, a 12% decrease from the $8.4 million income tax expense recorded for the same period a year ago. Despite increases in pretax income of 8% and 6% during the second quarter and first half of 2001, respectively, the provision for income taxes decreased primarily as a result of state tax benefits achieved through East West Securities Company, Inc., a regulated investment company formed and funded in July 2000. The continued realization of state tax benefits through this entity is dependent on its continuing qualification as a registered investment company under the Investment Company Act of 1940, as amended.

20

    The provision for income taxes for the second quarter of 2001 also reflects the utilization of tax credits totaling $1.1 million, compared to $1.0 million utilized during the same period in 2000. The second quarter 2001 provision reflects an effective tax rate of 26.5%, compared with 31.7% for the second quarter of 2000. For the first half of 2001, the effective tax rate of 27.5% reflects tax credits of $1.9 million, compared with an effective tax rate of 33.0% for the first half of 2000 reflecting tax credits of $2.0 million.

Balance Sheet Analysis

    The Company's total assets increased $143.8 million, or 6%, to $2.63 billion, as of June 30, 2001, relative to total assets at December 31, 2000. The increase in total assets was due primarily to a $158.3 million growth in loans receivable and a $110.5 million increase in short-term investments, partially offset by a decrease in investment securities available for sale of $130.8 million. The increase in total assets was funded by increases of $344.0 million in deposits, partially offset by decreases in short-term borrowings of $31.0 million and FHLB advances of $199.0 million.

Investment Securities Available for Sale

    Total investment securities available for sale decreased 27% to $357.5 million as of June 30, 2001, compared to total available for sale investment securities of $488.3 million at December 31, 2000. Investment securities with a net carrying value of $37.0 million were acquired from Prime Bank during the first quarter of 2001, substantially all of which were sold during the same period. Total repayments and proceeds from sales of available for sale securities amounted to $71.1 million and $135.0 million, respectively, during the six months ended June 30, 2001. Proceeds from repayments and sales were applied towards the repayment of short-term borrowings and FHLB advances as well as funding a portion of the loan originations made during the first half of 2001. The Bank recorded net gains totaling $1.7 million on sales of available for sale securities during the six months ended June 30, 2001.

    The following table sets forth the amortized cost and the estimated fair values of investment securities available for sale as of June 30, 2001 and December 31, 2000:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
		(In thousands)
As of June 30, 2001:
U.S. Treasury securities		$	3,309	$	74		—		$	3,383
U.S. Government agency securities			59,072		—		(3,369	)		55,703
Obligations of states and political subdivisions			200		2		—			202
Mortgage-backed securities			272,894		580		(1,596	)		271,878
Corporate securities			26,447		—		(860	)		25,587
Mutual Fund			707		4		—			711
	Total investment securities available for sale	$	362,629	$	660	$	(5,825	)	$	357,464
As of December 31, 2000:
U.S. Treasury securities		$	8,310	$	119	$	—		$	8,429
U.S. Government agency securities			72,290		—		(4,908	)		67,382
Obligations of states and political subdivisions			200		1		—			201
Mortgage-backed securities			390,592		99		(6,013	)		384,678
Corporate securities			28,904		—		(1,304	)		27,600
	Total investment securities available for sale	$	500,296	$	219	$	(12,225	)	$	488,290

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Loans

    Net loans receivable increased $158.3 million, or 9% to $1.95 billion at June 30, 2001. Excluding the $43.3 million of net loans acquired from Prime Bank, organic loan growth during the first half of 2001 amounted to $113.0 million, or 6%, compared to year-end 2000 levels. The increase in loans was funded primarily through deposit growth and through repayments and sales of investment securities available for sale.

    The growth in loans, excluding loans acquired from Prime Bank, is comprised primarily of increases in multifamily loans of $35.3 million or 11%, commercial real estate loans of $103.5 million or 16%, construction loans of $7.9 million or 7%, commercial business loans, including trade finance products, of $8.7 million or 3%, and consumer loans, including home equity lines of credit, of $7.4 million or 16%. Partially offsetting the growth in these loan categories was a decrease in single family loans of $50.0 million or 15%. The decrease in single family loans was primarily due to loan sales of $64.8 million and FNMA securitizations totaling $13.3 million during the first half of 2001.

    The following table sets forth the composition of the loan portfolio as of the dates indicated:

				June 30, 2001					December 31, 2000					June 30, 2000
				Amount			Percent		Amount			Percent		Amount			Percent
				(Dollars in thousands)
Real estate loans:
	Residential, one to four units			$	293,608		14.9	%	$	334,775		18.5	%	$	312,114		18.6	%
	Residential, multifamily				358,773		18.2	%		323,469		17.8	%		301,707		17.9	%
	Commercial and industrial real estate				759,249		38.5	%		640,713		35.3	%		588,701		35.0	%
	Construction				136,101		6.9	%		118,241		6.5	%		142,697		8.5	%
		Total real estate loans			1,547,731		78.5	%		1,417,198		78.1	%		1,345,219		80.0	%
Other loans:
	Business, commercial				370,161		18.7	%		350,282		19.3	%		297,426		17.7	%
	Automobile				9,049		0.4	%		6,409		0.4	%		5,850		0.3	%
	Other consumer				47,268		2.4	%		40,547		2.2	%		33,624		2.0	%
		Total other loans			426,478		21.5	%		397,238		21.9	%		336,900		20.0	%
			Total gross loans		1,974,209		100.0	%		1,814,436		100.0	%		1,682,119		100.0	%
Unearned fees, premiums and discounts, net					(101	)				(600	)				(390	)
Allowance for loan losses					(25,827	)				(23,848	)				(24,580	)
		Loan receivable, net		$	1,948,281				$	1,789,988				$	1,657,149

Nonperforming Assets

    Nonperforming assets are comprised of nonaccrual loans, loans past due 90 days or more but not on nonaccrual, restructured loans and other real estate owned, net. Nonperforming assets as a percentage of total assets were 0.31% and 0.30% at June 30, 2001 and December 31, 2000, respectively. Nonaccrual loans, which include loans 90 days or more past due, totaled $5.2 million at June 30, 2001, compared with $3.7 million at year-end 2000. Loans totaling $4.2 million were placed on nonaccrual status during the second quarter of 2001. These additions to nonaccrual loans were offset by $2.2 million in payoffs and $741 thousand in loans brought current. Additions to nonaccrual loans during the second quarter of 2001 were comprised of $620 thousand in residential single family loans, a $193 thousand commercial business loan, $3.3 million in trade finance loans and a $30 thousand home equity loan. For the six months ended June 30, 2001, nonaccrual loans increased $1.5 million due to $4.2 million additions to nonaccrual loans, partially offset by payoffs totaling $1.3 million, gross chargeoffs totaling $481 thousand and loans brought current totaling $809 thousand.

22

    Restructured loans and loans that have had their original terms modified totaled $2.8 million at June 30, 2001, compared with $3.0 million at year-end 2000. The decrease in restructured loans is due to payments received during the first six months of 2001.

    Other real estate owned ("OREO") includes properties acquired through foreclosure or through full or partial satisfaction of loans. Other real estate owned totaled $87 thousand and $801 thousand at June 30, 2001 and December 31, 2000, respectively. There were no additions to OREO during the first six months of 2001. One single family residential OREO property was sold during the six months ended June 30, 2001 at a gain of $13 thousand.

    The following table sets forth information regarding nonaccrual loans, loans past due 90 days or more but not on nonaccrual, restructured loans and other real estate owned as of the dates indicated:

		June 30, 2001			March 31, 2001			December 31, 2000			September 30, 2000			June 30, 2000
		(Dollars in thousands)
Nonaccrual loans		$	5,157		$	2,878		$	3,652		$	5,827		$	7,664
Loans past due 90 days or more but not on nonaccrual			—			1,067			—			—			—
	Total nonperforming loans		5,157			3,945			3,652			5,827			7,664
Restructured loans			2,812			2,902			2,972			4,119			4,142
Other real estate owned, net			87			87			801			929			830
	Total nonperforming assets	$	8,056		$	6,934		$	7,425		$	10,875		$	12,636
Total nonperforming assets to total assets			0.31	%		0.27	%		0.30	%		0.46	%		0.54	%
Allowance for loan losses to nonperforming loans			500.81	%		647.81	%		653.01	%		423.53	%		320.72	%
Nonperforming loans to total gross loans			0.26	%		0.21	%		0.20	%		0.34	%		0.46	%

    The Company evaluates impairment of loans according to the provisions of SFAS No. 114,Accounting by Creditors for Impairment of a Loan, as amended. Under SFAS No. 114, loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as an expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell.

    At June 30, 2001, the Bank had classified $12.1 million of its loans as impaired, compared with $12.4 million at December 31, 2000. Specific reserves on impaired loans totaled $2.9 million at June 30, 2001 and $1.3 million at December 31, 2000. The Bank's average recorded investment in impaired loans for the six months ended June 30, 2001 and 2000 were $15.1 million and $17.8 million, respectively. During the six months ended June 30, 2001 and 2000, gross interest income that would have been recorded on impaired loans, had they performed in accordance with their original terms, totaled $883 thousand and $957 thousand, respectively. Of this amount, actual interest recognized on impaired loans, on a cash basis, was $751 thousand and $759 thousand, respectively.

Allowance for Loan Losses

    Management of the Bank is committed to maintaining the allowance for loan losses at a level that is considered to be commensurate with estimated and known risks in the portfolio. Although the adequacy of the allowance is reviewed quarterly, management performs an ongoing assessment of the risks inherent in the portfolio. While management believes that the allowance for loan losses is

23

adequate at June 30, 2001, future additions to the allowance will be subject to continuing evaluation of estimated and known, as well as inherent, risks in the loan portfolio.

    The allowance for loan losses is increased by the provision for loan losses which is charged against current period operating results, and is decreased by the amount of net chargeoffs during the period. At June 30, 2001, the allowance for loan losses amounted to $25.8 million, or 1.31% of total loans, compared with $23.8 million, or 1.31% of total loans, at December 31, 2000, and $24.6 million, or 1.46% of total loans, at June 30, 2000. The $2.0 million increase in the allowance for loan losses at June 30, 2001, from year-end 2000, results from a $1.6 million in allowance for losses acquired from Prime Bank, $2.2 million in additional loss provisions, and $1.8 million in net chargeoffs recorded during the period.

    The provision for loan losses of $1.5 million for the second quarter of 2001 represents a 7% increase from the $1.4 million in loss provisions recorded during the second quarter of 2000. Second quarter 2001 net chargeoffs amounting to $1.2 million represent 0.26% of average loans outstanding for the three months ended June 30, 2001. This compares to net chargeoffs of $832 thousand, or 0.20% of average loans outstanding for the same period in 2000. For the six months ended June 30, 2001, the provision for loan losses totaled $2.2 million, a 21% decrease from the $2.8 million provision recorded during the same period in 2000. Net chargeoffs for the first half of 2001 totaling $1.8 million represent 0.19% of average loans outstanding for the six months ended June 30, 2001. This compares to net chargeoffs of $1.3 million for the first half of 2000, or 0.16% of average loans outstanding. The Bank continues to record loss provisions to compensate for both the continued growth of the Bank's loan portfolio, which grew 9% during the first half of 2001, and the changing composition of the overall loan portfolio, reflecting a shift toward commercial real estate and commercial business loans. At June 30, 2001, the combined volume of commercial real estate and commercial business loans represented approximately 57% of the total loan portfolio, compared to 55% at December 31, 2000 and 53% at June 30, 2000.

24

    The following table summarizes activity in the allowance for loan losses for the three and six months ended June 30, 2001 and 2000:

				Three Months Ended June 30,						Six Months Ended June 30,
				2001			2000			2001			2000
				(Dollars in thousands)
Allowance balance, beginning of period				$	25,556		$	24,012		$	23,848		$	20,844
Allowance from acquisition					—			—			1,550			2,256
Provision for loan losses					1,500			1,400			2,217			2,800
Charge-offs:
	1-4 family residential real estate				—			—			—			—
	Multifamily real estate				—			—			—			—
	Commercial and industrial real estate				—			—			—			3
	Business, commercial				1,409			1,277			2,132			2,029
	Automobile				6			7			6			7
	Other				—			—			—			—
		Total charge-offs			1,415			1,284			2,138			2,039
Recoveries:
	1-4 family residential real estate				62			27			62			227
	Multifamily real estate				8			—			8			9
	Commercial and industrial real estate				60			7			60			7
	Business, commercial				55			388			219			442
	Automobile				—			30			—			33
	Other				1			—			1			1
		Total recoveries			186			452			350			719
			Net charge-offs		1,229			832			1,788			1,320
Allowance balance, end of period				$	25,827		$	24,580		$	25,827		$	24,580
Average loans outstanding				$	1,925,723		$	1,695,101		$	1,895,590		$	1,654,270
Total gross loans outstanding, end of period				$	1,974,209		$	1,682,119		$	1,974,209		$	1,682,119
Annualized net charge-offs to average loans					0.26	%		0.20	%		0.19	%		0.16	%
Allowance for loan losses to total gross loans					1.31	%		1.46	%		1.31	%		1.46	%

    The Bank's total allowance for loan losses is comprised of two components—allocated and unallocated. The Bank utilizes several methodologies to determine the allocated portion of the allowance and to test overall adequacy. The two primary methodologies, the classification migration model and the individual loan review analysis methodology, provide the basis for determining allocations between the various loan categories as well as the overall adequacy of the allowance. These methodologies are augmented by ancillary analyses, which include historical loss analyses, peer group comparisons, and analyses based on the federal regulatory interagency policy for loan and lease losses.

25

    The following table reflects management's allocation of the allowance for loan losses by loan category and the ratio of each loan category to total loans as of the dates indicated:

		June 30, 2001			December 31, 2000			June 30, 2000
		Amount		%	Amount		%	Amount		%
		(Dollars in thousands)
1-4 family residential real estate		$	118	14.9	$	142	18.5	$	272	18.6
Multifamily real estate			1,616	18.2		1,768	17.8		1,396	17.9
Commercial and industrial real estate			4,085	38.5		4,472	35.3		3,722	35.0
Construction			2,162	6.9		2,370	6.5		3,038	8.5
Business, commercial			13,994	18.7		10,461	19.3		12,375	17.7
Automobile			27	0.4		23	0.4		20	0.3
Consumer and other			7	2.4		21	2.2		26	2.0
Other risks			3,818	—		4,591	—		3,731	—
	Total	$	25,827	100.0	$	23,848	100.0	$	24,580	100.0

    Allocated reserves on single family loans decreased $24 thousand, or 17%, to $118 thousand at June 30, 2001 primarily due to a 13% decrease in the volume of loans in this loan category since year-end 2000. Further, the loss factor for single family loans that are not classified (i.e. rated "pass") declined to 2 basis points at June 30, 2001 compared to 3 basis points at December 31, 2000. At June 30, 2001, approximately 99% of the loans within this category were rated "pass."

    Despite an 11% increase in the volume of multifamily loans at June 30, 2001 from year-end 2000 levels, allocated loss reserves on these loans decreased $152 thousand, or 9%, to $1.6 million at June 30, 2001. This is primarily due to a decrease in criticized (i.e. rated "special mention") loans relative to December 31, 2000. Multifamily loans rated special mention totaled $22 thousand at June 30, 2001, compared to $4.8 million at December 31, 2000.

    Similarly, allocated reserves on commercial real estate loans decreased $387 thousand, or 9%, to $4.1 million despite a 19% increase in the volume of commercial real estate loans at June 30, 2001, in comparison to year-end 2000 levels. This is primarily due to the reversal of a $350 thousand specific allocation on a commercial real estate loan that paid off in April 2001. There were no specific allocations on commercial real estate loans at June 30, 2001. Further contributing to the decrease in allocated reserves on commercial real estate loans is a decrease in criticized and classified (i.e. rated "substandard" or "doubtful") loans relative to December 31, 2000. Commercial real estate loans rated special mention totaled $2.0 million at June 30, 2001, compared to $8.9 million at December 31, 2000 while substandard commercial real estate loans decreased to $835 thousand at June 30, 2001, compared to $2.9 million at December 31, 2000.

    Allocated reserves on construction loans decreased $208 thousand, or 9%, to $2.2 million at June 30, 2001 primarily due to a decrease in criticized loans partially offset by an increase in classified loans relative to December 31, 2000. Construction loans rated special mention totaled $7.2 million at December 31, 2000. There were no construction loans rated special mention at June 30, 2001. On the contrary, total substandard construction loans increased to $1.7 million at June 30, 2001. There were no substandard construction loans at December 31, 2000.

    Allocated reserves on commercial business loans increased $3.5 million, or 34%, to $14.0 million at June 30, 2001 for two reasons. First, specific allocations on commercial loans increased to $2.7 million at June 30, 2001 compared to $968 thousand at December 31, 2000, primarily due to one loan. The other factor contributing to the increase in allocated reserves on commercial business loans is an increase in classified loans, partially offset by a decrease in criticized loans relative to December 31, 2000. Commercial business loans rated special mention totaled $1.3 million at June 30, 2001 compared to $41.3 million at December 31, 2000. On the other hand, substandard commercial business loans

26

totaled $20.9 million at June 30, 2001, compared to $8.2 million at December 31, 2000 while doubtful loans increased to $1.2 million at June 30, 2001 compared to $814 thousand at December 31, 2000.

    The allowance for loan losses of $25.8 million at June 30, 2001 exceeded the Bank's allocated allowance by $3.8 million, or 15% of the total allowance. This compares to an unallocated allowance of $4.6 million, or 19%, as of December 31, 2000. The $3.8 million unallocated allowance at June 30, 2001 is comprised of three elements. First, the Bank has set aside $2.2 million, or approximately 10% of the allocated allowance amount of $22.4 million at June 30, 2001, to compensate for the modeling risk associated with the classification migration and individual loan review analysis methodologies. The second element, which accounts for approximately $356 thousand of the unallocated allowance, has been established for the foreign transaction risk associated with credit lines totaling $86.5 million extended to financial institutions in foreign countries. Loss factors, ranging from 0.5% to 5.0% of the total credit facility, are multiplied by anticipated usage volumes to determine the loss exposure on this type of credit offering. These loss factors are internally determined based on the sovereign risk ratings of the various countries which range from BBB to AA. The total amount of the allowance set aside for foreign transaction risk associated with such credit lines totaled $1.4 million for both March 31, 2001 and December 31, 2000. The decrease in this element as of June 30, 2001 reflects the Bank's more refined calculation of the allowance with respect to loan commitments and foreign credit facilities. The third and final element, which accounts for approximately $1.2 million of the unallocated allowance, represents a 5% economic risk factor to compensate for the recent slowing of the national economy, as evidenced by rising unemployment rates and energy costs, eroding consumer confidence, and substantial shortfalls in sales and earnings. Management of the Bank has deemed it prudent to set aside a portion of the unallocated allowance to compensate for this current economic risk.

Deposits

    Deposits increased $344.0 million, or 18%, to $2.29 billion at June 30, 2001. The increase in deposits reflects $98.1 million in deposits acquired from Prime Bank in January 2001. Excluding this transaction, internal deposit growth amounted to $245.9 million, or 13%, over December 31, 2000. This internal deposit growth was comprised primarily of increases in non-interest bearing demand accounts of $109.7 million, or 54%, interest-bearing checking accounts of $46.2 million, or 42%, money market accounts of $19.0 million, or 16% and time deposits of $61.1 million, or 6%. The increases can be attributed to continued momentum from various promotions associated with the Chinese New Year holiday, as well as carryover benefits from the Prime Bank acquisition.

    Included in time deposits at June 30, 2001 are $132.8 million of brokered deposits, compared with $154.5 million as of December 31, 2000. The decrease of $21.7 million reflects the replacement of brokered deposits with the increasing volume of commercial and retail deposit accounts.

    Although the Company occasionally promotes certain time deposit products, its efforts are largely concentrated in increasing the volume of low-cost transaction accounts which generate higher fee income and are a less costly source of funds in comparison to time deposits.

27

Borrowings

    The Bank regularly uses short-term borrowings and FHLB advances to manage its liquidity position. Short-term borrowings, which consist of federal funds purchased and securities sold under agreements to repurchase decreased to $7.0 million at June 30, 2001, from $38.0 million at December 31, 2000. At June 30, 2001, the balance of short-term borrowings consisted entirely of federal funds purchased. The decrease in short-term borrowings during the six months ended June 30, 2001 was primarily due to the growth in core deposits.

    FHLB advances decreased 74% to $69.0 million as of June 30, 2001, a decrease of $199.0 million from December 31, 2000. The decrease in FHLB advances resulted primarily from the application of sales proceeds on investment securities and loans receivable to partially pay down outstanding advances. The growth in core deposits, cash acquired from Prime Bank and runoffs on investment securities available for sale as an alternate source of funding further contributed to the decrease in FHLB advances during the first six months of 2001.

Capital Resources

    The primary source of capital for the Company is the retention of net after tax earnings. At June 30, 2001, stockholders' equity totaled $217.2 million, a 17% increase from $186.1 million as of December 31, 2000. The increase is due primarily to: (1) net income of $19.5 million during the first six months of 2001; (2) net issuance of common stock totaling $2.0 million, representing 200,559 shares, from the exercise of stock options and stock warrants; (3) net issuance of common stock totaling $12.3 million, representing 512,707 shares, in connection with the acquisition of Prime Bank; (4) stock compensation costs amounting to $205 thousand related to the Company's Restricted Stock Award Program; (5) tax benefits of $1.1 million resulting from the exercise of nonqualified stock options; and (6) a decrease of $4.1 million in unrealized losses on available-for-sale securities. These transactions were offset by (i) repurchases of $7.1 million or 307,397 shares of common stock in connection with the Company's stock repurchase programs, and to a much lesser degree, from forfeitures of restricted stock awards; and (ii) payment of first and second quarter 2001 cash dividends totaling $1.4 million.

    Management is committed to maintaining capital at a level sufficient to assure shareholders, customers and regulators that the Company and its bank subsidiary are financially sound. The Company and its bank subsidiary are subject to risk-based capital regulations adopted by the federal banking regulators in January 1990. These guidelines are used to evaluate capital adequacy and are based on an institution's asset risk profile and off-balance sheet exposures. According to the regulations, institutions whose Tier 1 and total capital ratios meet or exceed 6% and 10%, respectively, are deemed to be "well-capitalized." At June 30, 2001, the Bank's Tier 1 and total capital ratios were 9.6% and 10.8%, respectively, compared to 9.5% and 10.7%, respectively, at December 31, 2000.

    The following table compares the Company's and the Bank's actual capital ratios at June 30, 2001, to those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:

	East West Bancorp		East West Bank		Minimum Regulatory Requirements		Well Capitalized Requirements
Total Capital (to Risk-Weighted Assets)	10.9	%	10.8	%	8.0	%	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	9.7	%	9.6	%	4.0	%	6.0	%
Tier 1 Capital (to Average Assets)	8.1	%	8.0	%	4.0	%	5.0	%

28

ASSET LIABILITY AND MARKET RISK MANAGEMENT

Liquidity

    Liquidity management involves the Bank's ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers' credit needs and ongoing repayment of borrowings. The Bank's liquidity is actively managed on a daily basis and reviewed periodically by the Asset/Liability Committee and the Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Bank, including adequate cash flow for off-balance sheet instruments.

    The Bank's primary sources of liquidity are derived from financing activities which include the acceptance of customer and broker deposits, federal funds facilities, repurchase agreement facilities and advances from the Federal Home Loan Bank of San Francisco. These funding sources are augmented by payments of principal and interest on loans, the routine liquidation of securities from the available-for-sale portfolio and securitizations of eligible loans. Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.

    During the six months ended June 30, 2001 and 2000, the Company experienced net cash inflows of $27.7 million and $14.3 million, respectively, from operating activities. The increase in net cash inflows from operating activities was primarily due to proceeds from the sale of securitized loans, while growth in interest income on loans and investment securities can be attributed for the increase in operating cash inflows for the same period in 2000. Net cash inflows from investing activities totaled $80.6 million for the six months ended June 30, 2001 which can be attributed to net proceeds from the sale of investment securities available for sale and loans receivable, as well as cash acquired through the purchase of Prime Bank in January 2001. For the first half of 2000, net cash outflows from investing activities totaled $192.3 million primarily due to the growth in the Bank's loan portfolio. The Company experienced net cash inflows from financing activities of $9.7 million for the first six months of 2001 primarily due to the growth in deposits partially offset by repayment of FHLB advances and short-term borrowings. During the first half of 2000, the growth in deposits and short-term borrowings largely accounted for net cash inflows from financing activities of $186.9 million.

    As a means of augmenting its liquidity, the Bank has established federal funds lines with four correspondent banks and several master repurchase agreements with major brokerage companies. At June 30, 2001, the Bank's available borrowing capacity includes approximately $40.0 million in repurchase arrangements, $85.0 million in federal funds line facilities, and $241.0 million in unused FHLB advances. Management believes its liquidity sources to be stable and adequate. At June 30, 2001, management was not aware of any information that was reasonably likely to have a material effect on the Bank's liquidity position.

    The liquidity of the parent company, East West Bancorp, Inc. is primarily dependent on the payment of cash dividends by its subsidiary, East West Bank, subject to limitations imposed by the Financial Code of the State of California. For the six months ended June 30, 2001, total dividends paid by the Bank to East West Bancorp, Inc. totaled $6.2 million, compared with $1.2 million for the same period in 2000. As of June 30, 2001, approximately $48.2 million of undivided profits of the Bank were available for dividends to the Company.

Interest Rate Sensitivity Management

    The Bank's success is largely dependent upon its ability to manage interest rate risk, which is the impact of adverse fluctuations in interest rates on the Bank's net interest income and net portfolio value. Although in the normal course of business the Bank manages other risks, such as credit and

29

liquidity risk, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Bank's financial condition and results of operations.

    The fundamental objective of the asset liability management process is to manage the Bank's exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The Bank's strategy is formulated by the Asset/Liability Committee, which coordinates with the Board of Directors to monitor the Bank's overall asset and liability composition. The Committee meets regularly to evaluate, among other things, the sensitivity of the Bank's assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses on its available-for-sale portfolio (including those attributable to hedging transactions), purchase and securitization activity, and maturities of investments and borrowings.

    The Bank's overall strategy is to minimize the adverse impact of immediate incremental changes in market interest rates (rate shock) on net interest income and net portfolio value. Net portfolio value is defined as the present value of assets, minus the present value of liabilities and off-balance sheet instruments. The attainment of this goal requires a balance between profitability, liquidity and interest rate risk exposure. To minimize the adverse impact of changes in market interest rates, the Bank simulates the effect of instantaneous interest rate changes on net interest income and net portfolio value on a monthly basis. The table below shows the estimated impact of changes in interest rates on net interest income and market value of equity as of June 30, 2001 and December 31, 2000, assuming a parallel shift of 100 to 200 basis points in both directions:

	Net Interest Income Volatility (1)				Net Portfolio Value Volatility (2)
Change in Interest Rates (Basis Points)	June 30, 2001		December 31, 2000		June 30, 2001		December 31, 2000
+200	12.9	%	7.4	%	(3.5	)%	(10.7	)%
+100	8.8	%	4.6	%	(0.2	)%	(5.0	)%
-100	(2.6	)%	(4.6	)%	0.2	%	2.1	%
-200	(8.1	)%	(9.2	)%	(3.0	)%	(0.8	)%

(1)

The percentage change represents net interest income for twelve months in a stable interest rate environment versus net interest income in the various rate scenarios.

(2)

The percentage change represents net portfolio value of the Bank in a stable rate environment versus net portfolio value in the various rate scenarios.

    All interest-earning assets, interest-bearing liabilities and related derivative contracts are included in the interest rate sensitivity analysis at June 30, 2001 and December 31, 2000. At June 30, 2001 and December 31, 2000, the Bank's estimated changes in net interest income and net portfolio value were within the ranges established by the Board of Directors.

    The primary analytical tool used by the Bank to gauge interest rate sensitivity is a simulation model used by many major banks and bank regulators, and is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model attempts to predict changes in the yields earned on assets and the rates paid on liabilities in relation to changes in market interest rates. As an enhancement to the primary simulation model, prepayment assumptions and market rates of interest provided by independent broker/dealer quotations, an independent pricing model and other available public sources are incorporated into the model. Adjustments are made to reflect the shift in the Treasury and other appropriate yield curves. The model also factors in projections of anticipated activity levels by Bank product line and takes into account the Bank's increased ability to control rates offered on deposit products in comparison to its ability to control rates on adjustable-rate loans tied to published indices.

30

    The following tables provide the outstanding principal balances and the weighted average interest rates of the Bank's non-derivative financial instruments as of June 30, 2001 and December 31, 2000. The Bank does not consider these financial instruments to be materially sensitive to interest rate fluctuations. Historically, the balances of these financial instruments have remained fairly constant over various economic conditions. The information presented below is based on the repricing date for variable rate instruments and the expected maturity date for fixed rate instruments.

		Expected Maturity or Repricing Date by Year
		2001			2002			2003			2004			2005			After 2006			Total			Fair Value at June 30, 2001
		(Dollars in thousands)
At June 30, 2001:
Assets:
Short-term investments		$	115,000		$	—		$	—		$	—		$	—		$	—		$	115,000		$	115,000
	Weighted average rate		4.00	%		—	%		—	%		—	%		—	%		—	%		4.00	%
Investment securities available-for-sale (fixed rate)		$	21,091		$	15,902		$	14,379		$	12,996		$	11,740		$	94,104		$	170,212		$	166,928
	Weighted average rate		6.10	%		6.06	%		6.06	%		6.06	%		6.06	%		6.06	%		6.06	%
Investment securities available-for-sale (variable rate)		$	192,417		$	—		$	—		$	—		$	—		$	—		$	192,417		$	190,536
	Weighted average rate		5.30	%		—	%		—	%		—	%		—	%		—	%		5.30	%
Total gross loans		$	1,574,400		$	150,415		$	118,363		$	48,764		$	44,271		$	37,996		$	1,974,209		$	1,987,153
	Weighted average rate		7.65	%		8.10	%		8.26	%		8.12	%		7.90	%		8.34	%		7.74	%
Liabilities:
Checking accounts		$	160,823		$	—		$	—		$	—		$	—		$	—		$	160,823		$	160,823
	Weighted average rate		1.34	%		—	%		—	%		—	%		—	%		—	%		1.34	%
Money market accounts		$	162,612		$	—		$	—		$	—		$	—		$	—		$	162,612		$	162,612
	Weighted average rate		2.93	%		—	%		—	%		—	%		—	%		—	%		2.93	%
Savings deposits		$	215,139		$	—		$	—		$	—		$	—		$	—		$	215,139		$	215,139
	Weighted average rate		1.25	%		—	%		—	%		—	%		—	%		—	%		1.25	%
Time deposits		$	1,329,261		$	39,303		$	3,377		$	1,686		$	1,490		$	20		$	1,375,137		$	1,380,750
	Weighted average rate		4.64	%		4.85	%		5.44	%		5.77	%		5.94	%		4.33	%		4.65	%
Short-term borrowings		$	7,000		$	—		$	—		$	—		$	—		$	—		$	7,000		$	7,000
	Weighted average rate		4.31	%		—	%		—	%		—	%		—	%		—	%		4.31	%
FHLB advances		$	30,000		$	9,000		$	30,000		$	—		$	—		$	—		$	69,000		$	70,809
	Weighted average rate		6.03	%		6.21	%		5.33	%		—	%		—	%		—	%		5.75	%
Junior subordinated debt securities		$	—		$	—		$	—		$	—		$	—		$	20,750		$	20,750		$	27,477
	Weighted average rate		—	%		—	%		—	%		—	%		—	%		10.91	%		10.91	%

31

		Expected Maturity or Repricing Date by Year
		2001			2002			2003			2004			2005			After 2006			Total			Fair Value at December 31, 2000
		(Dollars in thousands)
At December 31, 2000:
Assets:
Short-term investments		$	4,500		$	—		$	—		$	—		$	—		$	—		$	4,500		$	4,500
	Weighted average rate		6.50	%		—	%		—	%		—	%		—	%		—	%		6.50	%
Investment securities available-for-sale (fixed rate)		$	45,424		$	47,364		$	33,865		$	25,084		$	21,014		$	101,436		$	274,187		$	267,050
	Weighted average rate		6.12	%		6.17	%		6.11	%		6.15	%		6.15	%		6.19	%		6.16	%
Investment securities available-for-sale (variable rate)		$	226,109		$	—		$	—		$	—		$	—		$	—		$	226,109		$	221,240
	Weighted average rate		7.09	%		—	%		—	%		—	%		—	%		—	%		7.09	%
Total gross loans		$	1,456,775		$	139,424		$	106,963		$	48,110		$	26,958		$	36,206		$	1,814,436		$	1,812,765
	Weighted average rate		9.17	%		8.18	%		8.51	%		8.13	%		8.31	%		8.10	%		8.98	%
Liabilities:
Checking accounts		$	111,228		$	—		$	—		$	—		$	—		$	—		$	111,228		$	111,228
	Weighted average rate		1.39	%		—	%		—	%		—	%		—	%		—	%		1.39	%
Money market accounts		$	122,079		$	—		$	—		$	—		$	—		$	—		$	122,079		$	122,079
	Weighted average rate		4.19	%		—	%		—	%		—	%		—	%		—	%		4.19	%
Savings deposits		$	212,411		$	—		$	—		$	—		$	—		$	—		$	212,411		$	212,411
	Weighted average rate		2.05	%		—	%		—	%		—	%		—	%		—	%		2.05	%
Time deposits		$	1,207,804		$	53,043		$	6,505		$	1,737		$	2,389		$	29,910		$	1,301,388		$	1,299,899
	Weighted average rate		5.84	%		5.99	%		5.94	%		5.27	%		6.09	%		7.00	%		5.87	%
Short-term borrowings		$	38,000		$	—		$	—		$	—		$	—		$	—		$	38,000		$	38,013
	Weighted average rate		6.60	%		—	%		—	%		—	%		—	%		—	%		6.60	%
FHLB advances		$	244,000		$	10,000		$	14,000		$	—		$	—		$	—		$	268,000		$	268,074
	Weighted average rate		6.53	%		6.33	%		5.94	%		—	%		—	%		—	%		6.49	%
Junior subordinated debt securities		$	—		$	—		$	—		$	—		$	—		$	20,750		$	20,750		$	22,797
	Weighted average rate		—	%		—	%		—	%		—	%		—	%		10.91	%		10.91	%

    Expected maturities of assets are contractual maturities adjusted for projected payment based on contractual amortization and unscheduled prepayments of principal as well as repricing frequency. Expected maturities for deposits are based on contractual maturities adjusted for projected rollover rates and changes in pricing for deposits with no stated maturity dates. The Bank utilizes assumptions supported by documented analyses for the expected maturities of its loans and repricing of its deposits. It also relies on third party data providers for prepayment projections for amortizing securities. The actual maturities of these instruments could vary significantly if future prepayments and repricing differ from the Bank's expectations based on historical experience.

    The fair values of short-term investments approximate their book values due to their short maturities. The fair values of available for sale securities are based on bid quotations from third party data providers. The fair values of loans are estimated for portfolios with similar financial characteristics and takes into consideration discounted cash flows based on expected maturities or repricing dates utilizing estimated market discount rates as projected by third party data providers.

    Transaction deposit accounts, which include checking, money market and savings accounts, are presumed to have equal book and fair values because the interest rates paid on these accounts are based on prevailing market rates. The fair value of time deposits is based upon the discounted value of contractual cash flows, which is estimated using current rates offered for deposits of similar remaining terms. The fair value of short-term borrowings approximates book value due to their short maturities. The fair value of FHLB advances is estimated by discounting the cash flows through maturity or the next repricing date based on current rates offered by the FHLB for borrowings with similar maturities. The fair value of junior subordinated debt securities is estimated by discounting the cash flows through maturity based on current rates offered on the 30-year Treasury bond.

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    The Asset/Liability Committee is authorized to utilize a wide variety of off-balance sheet financial techniques to assist in the management of interest rate risk. Derivative positions are integral components of the Bank's asset/liability management strategy. Therefore, the Bank does not believe it is meaningful to separately analyze the derivatives components of its risk management activities in isolation from their related positions. The Bank uses derivative instruments, primarily interest rate swap and cap agreements, as part of its management of asset and liability positions in connection with its overall goal of minimizing the impact of interest rate fluctuations on the Bank's net interest margin or its stockholders' equity. These contracts are entered into for purposes of reducing the Bank's interest rate risk and not for trading purposes.

    The Bank entered into interest rate swap agreements for the purpose of converting fixed rate brokered certificates of deposits to floating rate liabilities. The gross notional amount of interest rate swap agreements totaled $30.0 million at December 31, 2000. There were no interest rate swap agreements outstanding at June 30, 2001. The Bank adopted SFAS No. 133 effective January 1, 2001. The adoption of this standard resulted in a cumulative pre-tax reduction to earnings of $149 thousand ($87 thousand after-tax) as a result of the fair valuation of the interest rate swap agreements. Pursuant to the adoption of SFAS No. 133, the Company recorded these interest rate swap agreements at their estimated fair values, with resulting gains or losses recorded in current earnings.

    The Bank has also entered into interest rate cap agreements which are primarily linked to the three-month LIBOR. Prior to October 1, 1999, the Bank used interest rate caps for purposes of hedging against market fluctuations in the Bank's available-for-sale securities portfolio. Due to the volatility of the correlation between the Treasury yield curve and fixed rate mortgage-backed securities, the Bank ceased using interest rate caps to hedge against fluctuations in the investment securities available for sale portfolio, effective October 1, 1999. The Bank continues to record these interest rate caps at their estimated fair values, with resulting gains or losses recorded in current earnings. The unrealized gains and losses reflected in accumulated other comprehensive income (loss) in stockholders' equity as of September 30, 1999 are amortized into interest income or expense over the expected remaining lives of these interest rate cap agreements.

33

    The following table summarizes the expected maturities, weighted average pay and receive rates, and the unrealized gains and losses of the Bank's interest rate contracts as of June 30, 2001 and December 31, 2000. The fair values reflected in the table are based on quoted market prices from broker dealers making a market for these derivatives.

		Expected Maturity
		2001			2002			2003			2004			After 2004			Total			Average Expected Maturity
		(Dollars in thousands)
At June 30, 2001:
Interest rate cap agreements:
	Notional amount	$	—		$	18,000		$	—		$	—		$	—		$	18,000		1.3 Years
	Libor cap rate		—	%		7.00	%		—	%		—	%		—	%		7.00	%

		Expected Maturity
		2001			2002			2003			2004			After 2004			Total			Unrealized Gain (Loss)			Average Expected Maturity
		(Dollars in thousands)
At December 31, 2000:
Interest rate swap agreements:
	Notional amount	$	—		$	—		$	—		$	—		$	30,000		$	30,000		$	(149	)	8.6 Years
	Weighted average receive rate		—	%		—	%		—	%		—	%		7.00	%		7.00	%
	Weighted average pay rate		—	%		—	%		—	%		—	%		6.61	%		6.61	%
Interest rate cap agreements:
	Notional amount	$	18,000		$	18,000		$	—		$	—		$	—		$	36,000		$	—		1.1 Years
	Libor cap rate		6.50	%		7.00	%		—	%		—	%		—	%		6.75	%

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS

    For quantitative and qualitative disclosures regarding market risks in the Bank's portfolio, see, "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations—Asset Liability and Market Risk Management."

34

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    Neither the Bank nor the Company is involved in any material legal proceedings. The Bank, from time to time is party to litigation which arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. In the opinion of management, based upon the advice of legal counsel, the resolution of any such issues would not have a material adverse impact on the financial position, results of operations, or liquidity of the Bank or the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    No events have transpired which would make response to this item appropriate.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    No events have transpired which would make response to this item appropriate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No events have transpired which would make response to this item appropriate.

ITEM 5. OTHER INFORMATION

    No events have transpired which would make response to this item appropriate.

ITEM 6. ITEM EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits Index

Exhibit Number	Exhibit Description
None

    All other material referenced in this report which is required to be filed as an exhibit hereto has previously been submitted.

(b)

Reports on Form 8-K

    The Company filed no reports on Form 8-K during the second quarter of 2001.

35

SIGNATURE

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 13, 2001
	EAST WEST BANCORP, INC. (Registrant)
	By:	/s/ JULIA GOUW   JULIA GOUW Executive Vice President and Chief Financial Officer

36

QuickLinks

TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (unaudited)
EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited)
EAST WEST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
EAST WEST BANCORP, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the Six Months Ended June 30, 2001 and 2000 (Unaudited)
PART II—OTHER INFORMATION
SIGNATURE