NARA BANCORP INC - 10-Q Quarterly Report

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, 2002 or

[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from __________ to __________

NARA BANCORP, INC.

(Exact name of registrant as specified in its charter)


Delaware		95-4849715

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
3701 Wilshire Boulevard, Suite 220, Los Angeles, California		90010

(Address of Principal executive offices)		(ZIP Code)

(213) 639-1700

(Registrant’s telephone number, including area code)

Nara Bank, N.A.

(Former name, former address and former fiscal year, if changed since last report)

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 [ ]

As of June 20, 2002, there were 5,515,801 outstanding shares of the issuer’s Common Stock, $0.001 par value.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and qualitative disclosures about market risk
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a vote of Security Holders
	Item 5. Other information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 3.3

Table of Contents


			Page

	PART I	FINANCIAL INFORMATION




Item 1.		FINANCIAL STATEMENTS




		Consolidated Statements of Financial Condition — June 30, 2002 and December 31, 2001	2




		Consolidated Statements of Income — Three and Six Months Ended June 30, 2002 and 2001	3




		Consolidated Statement of Stockholders’ Equity — Six Months Ended June 30, 2002	4




		Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001	5




		Notes to Consolidated Financial Statements	6




Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13




Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31




	PART II	OTHER INFORMATION




Item 1.		Legal Proceeding	35




Item 2		Change in Securities and Use of Proceeds	35




Item 3.		Defaults upon Senior Securities	35




Item 4.		Submission of Matters to a vote of Securities Holders	35




Item 5.		Other information	36




Item 6.		Exhibits and Reports on Form 8-K	36




		Signature	39




		Certification	40

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

ASSETS


				June 30,		December 31,
				2002		2001

Cash and due from banks				$	29,176,984	$	30,364,996
Federal funds sold					21,340,000		42,230,000
Interest-bearing deposits in other banks					289,000		487,000
Securities available for sale, at fair value					93,484,967		65,131,608
Securities held to maturity, at amortized cost (fair value: 6/30/02 - $4,456,080; 12/31/01- $4,274,010)					4,406,098		4,323,569
Interest-only strips, at fair value					315,304		224,322
Loan held for sale, at the lower of cost or market					6,337,806		3,657,842
Loans receivable, net of allowance for loan losses (6/30/2002 — $6,834,033; 12/31/2001 — $6,709,575)					597,565,844		498,482,682
Federal Reserve Bank stock					963,465		918,300
Federal Home Loan Bank stock					1,906,900		266,700
Premises and equipment					5,218,141		5,301,080
Other real estate owned					57,049		—
Accrued interest receivable					3,749,611		3,242,772
Servicing assets					1,284,190		1,182,414
Deferred income taxes, net					6,039,054		5,994,002
Customers’ acceptance liabilities					5,499,285		2,609,753
Cash surrender value of life insurance					10,592,748		10,429,962
Goodwill and intangible assets, net					1,284,089		1,347,030
Interest rate swaps, at fair value					418,938		—
Other assets					3,769,180		3,244,143

TOTAL				$	793,698,653	$	679,438,175

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
	Deposits:
		Noninterest-bearing		$	225,748,616	$	199,082,971
		Interest-bearing:
			Money market and other		82,115,107		84,102,987
			Savings deposits		83,630,931		78,932,997
			Time deposits of $100,000 or more		195,911,236		158,224,821
			Other time deposits		70,287,554		69,500,626

			Total deposits		657,693,444		589,844,402
Borrowing from Federal Home Loan Bank					38,000,000		5,000,000
Subordinated notes					4,150,000		4,300,000
Accrued interest payable					2,440,866		3,205,721
Acceptances outstanding					5,499,285		2,609,753
Negative goodwill, net					—		4,192,334
Trust Preferred Securities					17,432,062		9,665,082
Other liabilities					6,825,384		5,193,475

			Total liabilities		732,041,041		624,010,767
Commitments and Contingencies (Note 8)
Stockholders’ equity:
	Common stock, $0.001 par value; authorized, 20,000,000 shares and 10,000,000 shares at June 30, 2002 and December 31, 2001, respectively; issued and outstanding, 5,515,801 and 5,572,837 shares at June 30, 2002 and December 31, 2001, respectively				5,516		5,573
	Capital surplus				31,162,522		32,989,549
	Retained earnings				30,200,476		22,075,612
	Accumulated other comprehensive income, unrealized gain on securities available for sale and interest-only strips, net of taxes of $35,705 and $237,785 at June 30, 2002 and December 31, 2001, respectively				53,557		356,674
	unrealized gain on interest rate swaps, net of tax of $157,027 at June 30, 2002				235,541		—

			Total stockholders’ equity		61,657,612		55,427,408

			Total liabilities and stockholders’ equity	$	793,698,653	$	679,438,175

See accompanying notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME
For the three months and six months ended June 30, 2002 and 2001
(Unaudited)


					Three Months Ended June 30,				Six Months Ended June 30,

					2002		2001		2002		2001

INTEREST INCOME:
	Interest and fees on loans				$	10,391,314	$	10,331,467	$	19,396,370	$	20,488,696
	Interest on securities					1,460,338		1,205,789		2,678,247		2,560,239
	Interest on other investments, including TCD with other financial institution					27,639		87,503		42,760		205,052
	Interest on federal funds sold					83,523		646,764		247,420		1,787,077

				Total interest income		11,962,814		12,271,523		22,364,797		25,041,064

INTEREST EXPENSE:
Interest expense on deposits						2,432,740		4,272,198		4,918,761		8,890,244
Interest on borrowings						721,604		444,413		1,199,474		624,953

			Total interest expense			3,154,344		4,716,611		6,118,235		9,515,197

			Net interest income before provision for loan losses			8,808,470		7,554,912		16,246,562		15,525,867
Provision for loan losses						600,000		—		950,000		—

Net interest income after provision for loan losses						8,208,470		7,554,912		15,296,562		15,525,867

NON-INTEREST INCOME:
	Service charges on deposit accounts					1,510,619		1,588,693		2,952,551		3,019,094
	Other charges and fees					1,653,758		1,348,970		2,979,846		2,679,062
	Gain on sale of securities					473,107		708,244		1,045,108		708,244
	Gain on sale of premises and equipments					25,599		26,637		34,184		26,965
	Gain on sale of other real estate owned					36,798		—		36,798		35,555
	Gain on sale of SBA loans					424,330		674,433		781,221		674,433
	Gain on interest rate swaps					26,370		—		26,370		—
	Amortization of negative goodwill					—		330,974		—		661,948

				Total non-interest income		4,150,581		4,677,951		7,856,078		7,805,301

NON-INTEREST EXPENSE:
	Salaries, wages and employee benefits					4,152,749		3,635,191		8,223,178		7,166,508
	Net occupancy expense					1,041,120		945,114		2,052,935		1,870,035
	Furniture and equipment expense					382,740		322,593		761,384		629,235
	Advertising and marketing expense					383,618		199,331		598,143		395,495
	Data processing expense					374,148		373,519		780,519		752,575
	Professional fee					336,616		300,904		540,738		521,388
	Other operating expenses					1,300,975		785,100		2,316,030		1,954,745

				Total non-interest expense		7,971,966		6,561,752		15,272,927		13,289,981

Income before income taxes and cumulative effect of a change in accounting principle						4,387,085		5,671,111		7,879,713		10,041,187
Income tax provision						1,545,000		2,343,000		2,825,000		3,938,000

Income before cumulative effect of a change in accounting principle						2,842,085		3,328,111		5,054,713		6,103,187
Cumulative effect of a change in accounting principle						—		—		4,192,334		—

Net income					$	2,842,085	$	3,328,111	$	9,247,047	$	6,103,187

Earnings Per Share:
Income before cumulative effect of a change in accounting principle
		Basic			$	0.51	$	0.61	$	0.91	$	1.11
		Diluted				0.48		0.57		0.86		1.05
Cumulative effect of a change in accounting principle
		Basic			$	—	$	—	$	0.75	$	—
		Diluted				—		—		0.71		—
Net income
		Basic				0.51		0.61		1.66		1.11
		Diluted			$	0.48	$	0.57	$	1.57	$	1.05

See accompanying notes to consolidated financial statements

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)


															Accumulated
			Number of												Other
			Shares			Common			Capital			Retained			Comprehensive			Comprehensive
			Outstanding			Stock			Surplus			Earnings			Income (Loss)			Income (Loss)

BALANCE, DECEMBER 31, 2001				5,572,837			5,573		$	32,989,549		$	22,075,612		$	356,674
Warrants exercised				39,550			40			474,560
Stock options exercised				6,000			6			47,984
Stock repurchased				(102,586	)		(103	)		(2,349,571	)
Cash dividend declared													(1,122,183	)
Comprehensive income:
	Net income												9,247,047					$	9,247,047
	Other comprehensive loss —
		Change in unrealized gain on securities available for sale and interest only strips, net of tax														(303,117	)		(303,117	)
		Change in unrealized gain on interest rate swaps, net of tax														235,541			235,541

Comprehensive income																		$	9,179,471

BALANCE, JUNE 30, 2002				5,515,801		$	5,516		$	31,162,522		$	30,200,476		$	289,098

DISCLOSURE OF RECLASSIFICATION AMOUNT FOR SIX MONTHS ENDED JUNE 30, 2002


Unrealized holding gains arising during the period:
	Unrealized holding gains on securities available for sale and interest-only strips, net of tax expense of $215,963	$	323,948
	Unrealized holding gains on interest rate swaps, net of tax expense of $157,027		235,541

			559,489
	Less: Reclassification adjustment for gain included in net income, net of tax expense of $418,043		(627,065	)

Net change in unrealized (loss) gain during the period:
	Net change in securities available for sale and interest-only strips, net of tax benefit of $202,080		(303,117	)
	Net change in unrealized gain of interest rate swaps, net of tax expense of $157,027		235,541

		$	(67,576	)

See accompanying notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)


					2002			2001

CASH FLOW FROM OPERATING ACTIVITIES
	Net income				$	9,247,047			6,103,187
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization, and accretion				493,313			(382,284	)
		Provision for loan losses				950,000			—
		Provision for other real estate owned				16,414			—
		Proceeds from sales of SBA Loans				13,089,164			10,984,781
		Origination of SBA Loans				(24,228,220	)		(4,564,059	)
		Net gain on sale of SBA loans				(781,221	)		(674,433	)
		Gain on sales of securities available for sale				(1,045,108	)		(708,244	)
		Gain on sales of premises and equipment				(34,184	)		(26,965	)
		Gain on sale of other real estate owned				(36,798	)		(35,555	)
		Gain on interest rate swap				(26,370	)		—
		Increase in accrued interest receivable				(506,839	)		(605,528	)
		(Increase) decrease in other assets				(616,813	)		3,369,866
		(Decrease) increase in accrued interest payable				(764,855	)		235,256
		Increase (decrease) in other liabilities				1,077,243			(2,469,669	)
		Cumulative effect of a change in accounting principle				(4,192,334	)		—

				Net cash (used in) provided by operating activities		(7,359,561	)		11,226,353

CASH FLOWS FROM INVESTING ACTIVITIES
		Net increase in loans receivable				(90,885,850	)		(108,880,195	)
		Net increase in cash surrender value of life insurance				(162,786	)		(1,970,715	)
		Purchase of premises and equipment				(466,855	)		(514,311	)
		Purchase of securities available for sale				(65,756,423	)		(34,066,501	)
		Proceeds from sale of other real estate owned				56,336
		Proceeds from sale of premises and equipment				24,000			1,732,466
		Proceeds from sale of securities available for sale				31,108,761			27,984,181
		Proceeds from matured or called securities held to maturity				—			300,000
		Proceeds from matured or called securities available for sale				6,776,452			14,190,305
		Purchase of Federal Home Loan Bank stock				(1,640,200	)		(7,800	)
		Purchase of Federal Reserve stock				(45,165	)		—
		Decrease in interest-only strip				4,665			46,079
		Proceeds from matured interest-bearing deposits in other banks				198,000			3,117,000

		Net cash used in investing activities				(120,789,065	)		(98,069,491	)

CASH FLOWS FROM FINANCING ACTIVITIES
		Net increase in deposits				67,849,042			34,697,075
		Proceeds from issuance of Trust Preferred Securities, net				7,759,000			9,659,357
		Payment of cash dividend				(560,344	)		(822,753	)
		Paydown on subordinated notes				(150,000	)		—
		Repurchase of common stock				(2,349,674	)
		Proceeds from Federal Home Loan Bank borrowing				33,000,000			—
		Proceeds from stock options exercised				474,600			119,601
		Proceeds from warrants exercised				47,990			87,208

		Net cash provided by financing activities				106,070,614			43,740,488

	NET DECREASE IN CASH AND CASH EQUIVALENTS					(22,078,012	)		(43,102,650	)
	CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR					72,594,996			132,680,310

	CASH AND CASH EQUIVALENTS, END OF YEAR				$	50,516,984			89,577,660

	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
			Interest paid		$	6,883,090			9,279,941
			Income taxes paid		$	850,400			4,515,653
	SUPPLEMENTAL SCHEDULE OF NONCASH INVESTMENT ACTIVITIES
			Transfer of loans to other real estate owned		$	93,001			—
			Transfer of loans receivables to loan held for sale		$	—		$	8,731,016

See accompanying notes to consolidated financial statements

Notes to Consolidated Financial Statements

1. Nara Bancorp Inc.

Nara Bancorp, Inc. (“Nara Bancorp”, on a parent-only basis, and “we” or “our” on a consolidated basis), incorporated under the laws of the State of Delaware in 2000, is a bank holding company, headquartered in Los Angeles, California, offering a full range of commercial banking and consumer financial services through its wholly owned subsidiary, Nara Bank, N.A., a national bank (“Nara Bank”) with branches in California and New York as well as Loan Production Offices in Seattle, Chicago, New Jersey and Atlanta.

2. Basis of Presentation

Our consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such SEC rules and regulations.

The consolidated financial statements include the accounts of Nara Bancorp and its wholly owned subsidiaries, Nara Bank, Nara Capital Trust I and Nara Statutory Trust II. All significant intercompany transactions and balances have been eliminated in consolidation.

We also believe that we have made all adjustments necessary to fairly present our financial position and the results of our operations for the interim period ended June 30, 2002. Certain reclassifications have been made to prior year amounts to conform to the June 30, 2002 presentation. The results of operations for interim periods are not necessarily indicative of results for the full year.

These consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in our 2001 Annual Report on Form 10-K.

3. Dividends

On February 28, 2002, we declared a $0.10 per share cash dividend payable on April 11, 2002 to stockholders of record at the close of business on March 31, 2002. On May 29, 2002, we declared another $0.10 per share cash dividend payable on July 12, 2002 to stockholders of record at the close of business on June 30, 2002.

4. Earnings Per Share

Basic earnings-per-share excludes the number of shares of common stock that could be purchased from those who hold exercisable stock options or warrants and is computed by dividing our earnings for the period by the weighted-average number of common shares outstanding for the period. Diluted earnings-per-share includes the weighted-average number of common shares, plus the number of shares that could be issued upon the exercise of stock options and/or warrants that are currently exercisable and where the exercise price is more than the current market value of our common stock.

The following table shows how we computed basic and diluted earnings per share at June 30, 2002 and 2001.


	For the three months ended June 30,

	2002							2001

	Income		Shares		Per Share			Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount			(Numerator)		(Denominator)		Amount

Basic EPS
Net Income	$	2,842,085		5,560,559	$	0.51		$	3,328,111		5,489,099	$	0.61

Effect of Dilutive Securities:
Options — Common Stock Equivalent				310,640		(0.03	)				280,268		(0.03	)
Warrants — Common Stock Equivalent				39,003		(—	)				48,581		(0.01	)

Diluted EPS
Income Available to Common Stockholders	$	2,842,085		5,910,202	$	0.48		$	3,328,111		5,817,948	$	0.57


	For the six months ended June 30,

	2002							2001

	Income		Shares		Per Share			Income		Shares		Per Share
	(Numerator)		(denominator)		Amount			(Numerator)		(denominator)		Amount

Basic EPS
Income before Cumulative Effect of a Change in Accounting Principle	$	5,054,713		5,567,719	$	0.91		$	6,103,187		5,478,056	$	1.11

Effect of Dilutive Securities:
Options — Common Stock Equivalent				291,683		(0.04	)				279,197		(0.05	)
Warrants — Common Stock Equivalent				41,546		(0.01	)				55,148		(0.01	)

Diluted EPS
Income Available to Common Stockholders	$	5,054,713		5,900,948	$	0.86		$	6,103,187		5,812,401	$	1.05

Basic EPS
Cumulative Effect of a Change in Accounting Principle		4,192,334							—
Income Available to Common Stockholders	$	9,247,047		5,567,719	$	1.66		$	6,103,187		5,478,056	$	1.11

Effect of Dilutive Securities:
Options — Common Stock Equivalent				291,683		(0.08	)				279,197		(0.05	)
Warrants — Common Stock Equivalent				41,546		(0.01	)				55,148		(0.01	)

Diluted EPS
Income Available to Common Stockholders	$	9,247,047		5,900,948	$	1.57		$	6,103,187		5,812,401	$	1.05

5. Trust Preferred

We have completed two private offerings of trust preferred securities for a total of $18.0 million for general corporate purposes.

The first offering was completed on March 28, 2001 and we raised $10.0 million through Nara Capital Trust I (“Trust I”), as part of a pooled offering with several other financial institutions. The trust preferred securities bear a 10.18 percent per annum fixed rate of interest payable semi-annually for a 30-year term. We incurred $344,000 in issuance costs, which are being amortized over the term of these securities. Trust I used the proceeds from the sale of the trust preferred securities to purchase junior subordinated deferrable interest debentures of Nara Bancorp.

The second offering was completed on March 26, 2002 and we raised $8.0 million through Nara Statutory Trust II (“Trust II”), as part of a pooled offering with several other financial institutions. For the period beginning on March 26, 2002 to June 25, 2002, the trust preferred securities bear the interest rate of 5.59 percent per annum payable quarterly. Beginning with June 26, 2002, the interest rate is adjusted quarterly on March 26, June 26, September 26 and December 26 during the 30-year term based on the 3-month LIBOR plus 3.60 percent. However, prior to March 26, 2007, the interest rate cannot exceed 11.0 percent. We incurred $271,000 in issuance costs, which are being amortized over the term of these securities. Trust II used the proceeds from the sale to purchase junior subordinated deferrable interest debentures of Nara Bancorp.

6. Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001 and also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those acquired intangible assets that are required to be included in goodwill. SFAS No. 142 requires that goodwill no longer be amortized, but instead be tested for impairment at least annually. Additionally, SFAS No. 142 requires recognized intangible assets to be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, as replaced by SFAS No. 144. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead must be tested for impairment until its life is determined to no longer be indefinite. We adopted the new rules on accounting for goodwill and other intangible assets on January 1, 2002.

At adoption and at June 30, 2002, we do not have any intangible assets that will no longer be amortized and subject to annual impairment testing other than goodwill. During the first quarter of the fiscal year 2002, we evaluated our existing intangible assets to make any necessary reclassifications in order to conform with the new requirements. We reassessed the useful life and the residual value of our intangible assets and concluded that the useful life will remain the same and no amortization adjustment was necessary. As of June 30, 2002, intangible assets that continue to be subject to amortization include core deposits of $409,121 (net of $ 472,059 accumulated amortization) and loan servicing rights of $1.3 million (net of $558,000 accumulated amortization). Amortization expense for such intangible asset was $194,399 for the six months ended June 30, 2002. Estimated amortization expense for the remainder of 2002 and the five succeeding fiscal year follows:


2002 (remaining six months)	$	171,287
2003		321,009
2004		294,837
2005		239,807
2006		123,959
2007		104,138

Furthermore, in connection with the transitional impairment evaluation, SFAS No. 142 requires us to perform an assessment of whether there was an indication that goodwill was impaired as of January 1, 2002. The transitional assessment consists of the following steps: (1) identify our reporting units, (2) determine the carrying value of each reporting unit by assigning

the assets and liabilities, including the existing goodwill and intangible assets to those reporting units, and (3) determine the fair value of each reporting unit. We have completed our evaluation of any transitional impairment on our goodwill by June 30, 2002, and have determined that the carrying value of the related reporting unit which goodwill was assigned to did not exceed the fair value on January 1, 2002. Therefore, no impairment was recorded as of June 30, 2002. At June 30, 2002, goodwill was $874,968.

At December 31, 2001, we had negative goodwill (the amount of the fair values of assets acquired and liabilities assumed exceeds the cost of an acquired company) of $4,192,334. In accordance with SFAS No. 142, such amount was recognized in our consolidated statement of income as the cumulative effect of a change in accounting principle on January 1, 2002. Additionally, the recognition of negative goodwill into the consolidated statement of income is not effected for taxes as such item is treated as a permanent difference for tax purposes and no deferred taxes were allocated during the initial recording of the negative goodwill.

The following table sets forth a reconciliation of net income and earnings per share information, before the cumulative effect of a change in accounting principle, for the six months ended June 30, 2002 and 2001 adjusted for the non-amortization provision of SFAS No. 142.


		Six Months			Six Months
		Ended			Ended
		June 30, 2002			June 30, 2001

		(Dollars in thousands)
Reported net income		$	9,247		$	6,103
Deduct: Recognition of a negative goodwill			(4,192	)		—

Reported net income before cumulative effect of a change in accounting principle			5,055			6,103
Add back: Goodwill amortization, net of tax expense of $15			—			22
Deduct: Negative goodwill amortization			—			(662	)

Adjusted net income		$	5,055		$	5,463

Basic earnings per share:
	Reported net income per share	$	1.66		$	1.11
	Recognition of a negative goodwill		(0.75	)		—
	Goodwill amortization		—			0.01-
	Negative goodwill amortization		—			(0.12	)

	Adjusted net income per share	$	0.91		$	1.00

Diluted earnings per share:
	Reported net income per share	$	1.57		$	1.05
	Recognition of a negative goodwill		(0.71	)		—
	Goodwill amortization		—			—
	Negative goodwill amortization		—			(0.11	)

	Adjusted net income per share	$	0.86		$	0.94

7. Recent Accounting Pronouncements

SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125, was issued in September 2000 and revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS No. 125 without reconsideration SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The statement is effective for recognition and reclassification of collateral and for disclosures related to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS No. 140 did not have a material impact on ours financial position, results of operations, or cash flows.

SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, replaces SFAS No. 121. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount of fair value less cost to sell, whether reported in continuing operations or in discontinued operations. It also expands the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 5, 2001. The adoption of this statement is not expected to have a material impact on our financial position, results of operation, or cash flows.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (“EITF”) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002.

8. Commitments

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Our exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for extending loan facilities to customers. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable; inventory; property, plant, and equipment; and income-producing properties.

Commitments at June 30, 2002 are summarized as follows:


Commitments to extend credit	$	129,599,541
Standby letters of credit		4,080,212
Commercial letters of credit		32,310,053

9. Stock Repurchase

On March 8, 2002, our Board of Directors approved the repurchase of up to 10% of our outstanding shares of common stock over the next 12 months. We intend to repurchase the shares in open market transactions, including block purchases. During the quarter ended June 30, 2002, we reacquired and retired 102,586 shares for $2,349,674 at an average price of $22.90.

10. Derivative Financial Instruments and Hedging Activities

As part of our asset and liability management strategy, we may engage in derivative financial instruments, such as interest rate swaps, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. During the second quarter of 2002, we have entered into two interest rate swap agreements as summarized in the table below. Our objective for the interest rate swaps is to manage asset and liability positions in connection with our overall strategy of minimizing the interest rate fluctuations on our interest rate margin and equity. As part of our overall risk management, Asset Liability Committee, which meets monthly, monitors and measures the interest rate risk, the sensitivity of our assets and liabilities to the interest rate changes, including the impact of the interest rate swaps. In addition, such analysis and discussions are communicated monthly to the board members.

Under the swap agreements, we receive a fixed rate and pay a variable rate based on H.15 Prime. The swaps qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and are designated as hedges of the variability of cash flows we receive from certain of our Prime-indexed loans. In accordance with SFAS No. 133, these swap agreements are measured at fair value and reported as assets or liabilities on the consolidated statement of financial condition. The portion of the change in the fair value of the swaps which is deemed effective in hedging the cash flows of the designated assets is recorded in other comprehensive income (“OCI”) and reclassified into interest income when such cash flows actually occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss directly to the consolidated statement of income as a part of non-interest income. As of June 30, 2002, the amounts in accumulated OCI associated with these cash flows totaled $235,541 (net of tax of $157,027 as part of non-interest income), of which $100,633 is expected to be reclassified into interest income within the next 12 months.

Interest rate swaps information at June 30, 2002 are summarized as follows:


Current Notional
Amount	Floating Rate	Fixed Rate		Maturity Date		Unrealized Gain		Realized Gain¹

$20,000,000	H.15 Prime²		6.95%		4/29/2005	$	165,895	$	10,035
20,000,000	H.15 Prime²		7.59%		4/30/2007		226,673		16,335

$40,000,000						$	392,568	$	26,370

1.		Gain included in the consolidated statement of income since inception of the swaps.




2.		Prime rate is based on Federal Reserve statistical release H.15

We pledged to counterparty as collateral agency securities with a book value of $2.0 million at June 30, 2002.

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

The following is management’s discussion and analysis of the major factors that influenced our consolidated results of operations and financial condition for the quarter and six months ended June 30, 2002. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2001 and with the unaudited consolidated financial statements and notes as set forth in this report.

GENERAL

Selected Financial Data

The following table sets forth certain selected financial data concerning the periods indicated:


			At or for the Six Months Ended
			(Unaudited)

			6/30/2002		6/30/2001

			(dollars in thousands)
STATEMENTS OF INCOME
	Interest income		$	22,365	$	25,041
	Interest expense			6,118		9,515

	Net interest income			16,247		15,526
	Provision for loan losses			950		—
	Non-interest income			7,856		7,805
	Non-interest expense			15,273		13,290

	Income before income tax			7,880		10,041
	Income tax			2,825		3,938

	Net income before cumulative effect of a change in accounting principle			5,055		6,103
	Cumulative effect of a change in accounting principle			4,192		—

	Net income after cumulative effect of a change in accounting principle		$	9,247	$	6,103

PER SHARE DATA:
	Before cumulative effect of a change in accounting principle:
		Basic	$	0.91	$	1.11
		Diluted		0.86		1.05
	After cumulative effect of a change in accounting principle:
		Basic		1.66		1.11
		Diluted		1.57		1.05
	Book value (period end)			10.92		9.11
	Number of shares outstanding			5,515,801		5,501,017
	Dividend declared			0.20		0.15


		At or for the Six Months Ended
		(Unaudited)

		6/30/2002			6/30/2001

		(dollars in thousands)
STATEMENTS OF FINANCIAL CONDITION:
	Total assets	$	793,699		$	648,758
	Investment securities		97,891			62,654
	Net loans *		603,904			457,957
	Deposits		657,693			562,406
	Stockholders’ equity		61,658			50,174
AVERAGE BALANCES:
	Average net loans *	$	535,207		$	409,315
	Average investment securities		91,763			72,238
	Average assets		719,738			618,528
	Average deposits		606,962			539,269
	Average equity		61,247			47,250
PERFORMANCE RATIOS:
	Return on average assets(1)		2.57	%		1.97	%
	Return on average stockholders’ equity(1)		30.20	%		25.83	%
	Operating expense to average assets(1)		4.24	%		4.30	%
	Efficiency ratio (2)		63.37	%		56.96	%
	Net interest margin(3)		4.94	%		5.59	%
CAPITAL RATIOS(4)
	Leverage capital ratio(5)		10.33	%		8.95	%
	Tier 1 risk-based capital ratio		11.38	%		11.11	%
	Total risk-based capital ratio		12.62	%		12.85	%
ASSET QUALITY RATIOS
	Allowance for loan losses to total gross loans		1.12			1.47	%
	Allowance for loan losses to non-accrual loans		977.68	%		850.62	%
	Total non-performing assets to total assets(6)		0.21	%		0.12	%

*		Includes the loan held for sale in the amount of $6,337,806 and $2,310,294 at June 30, 2002 and 2001, respectively, and average balance of $4,077,456 and $770,098 for the six months ended June 30, 2002 and 2001, respectively.




(1)		Calculations are based on annualized net income.




(2)		Efficiency ratio is defined as operating expense divided by the sum of net interest income and other non-interest income.




(3)		Net interest margin is calculated by dividing annualized net interest income by total average interest-earning assets.




(4)		The required ratios for a “well-capitalized” institution are 5% leverage capital, 6% tier 1 risk-based capital and 10% total risk-based capital.




(5)		Calculations are based on average quarterly assets balances.




(6)		Non-performing assets include non-accrual loans and other real estate owned.

Forward-Looking Information

Certain matters discussed under this caption may constitute forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because our business involves inherent risks and uncertainties. Risks and uncertainties include possible future deteriorating economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available for sale securities declining significantly in value as interest rates rise; and regulatory risks associated with the variety of current and future regulations to which we are subject. For additional information concerning these factors, see “Item 1. Business - Factors That May Affect Business or the Value of Our Stock” contained in our Form 10-K for the year ended December 31, 2001.

RESULTS OF OPERATIONS

Overview

Net Income. Our net income for the three months ended June 30, 2002 was $ 2.8 million or $0.48 per diluted share compared to $3.3 million or $0.57 per diluted share for the same quarter of 2001, which represented a decrease of approximately $0.5 million or 15.2%. The decrease resulted primarily from a decrease in interest margin and an increase in non-interest expense. The annualized return on average assets was 1.50 % for the second quarter of 2002 compared to 2.10% for the same period of 2001. The annualized return on average equity was 18.29% for the second quarter of 2002 compared to 27.47% for the same period of 2001. The resulting efficiency ratios were 61.63% for the three months ended June 20, 2002 compared with 53.64% for the corresponding period of the preceding year. The increase was primarily due to the increase in personnel expense related to the opening of new branches subsequent to the second quarter of prior year.

For the six months ended June 30, 2002, our net income before the cumulative effect of a change in accounting principle was $5.1 million or $0.86 per diluted share compared to $6.1 million or $1.05 per diluted share for the same period of 2001, which represented a decrease of approximately $1.0 million or 16.4%. This decrease was primarily a result of a decrease in net interest margin from a series of interest rate cuts and partly from an increase in non-interest expense and loan loss provision offset by a decrease in income tax provision. Please see “Non-interest expense” and “Provision for income tax” for further discussion. The effect of the change in accounting principle, related to the one-time recognition of all negative goodwill in the consolidated statement of income at January 1, 2002 in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, was a positive $4.2 million, resulting in total net income for the six months ended June 30, 2002 of $9.2 million or $1.57 per diluted share.

The annualized return on average assets was 2.57% for the six months ended June 30, 2002 compared to a return on average assets of 1.97% for the corresponding period of 2001. The annualized return on average equity was 30.20% for the six months ended June 30, 2002 compared to a return on average equity of 25.83% for the corresponding period of 2001.

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds. When net interest income is expressed as a percentage of average interest-earning assets, the result is the net interest margin. The net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing deposits and borrowed funds.

Net interest income before provision for loan losses was $8.8 million for the three months ended June 30, 2002, which represented an increase of $1.2 million or 15.8% from net interest income of $7.6 million for the same period of 2002. This increase was primarily due to a decrease in interest expense on deposits, which have fully repriced to reflect the current market rates in year 2002. Interest income for the three months ended June 30, 2002 was $12.0 million, which represented a decrease of $0.3 million or 2.4% over interest income of $12.3 million for the same period of 2001. Despite a 20.5% increase in average interest-earning assets, interest income decreased primarily due to 200 basis point rate cuts made by the Federal Reserve Bank during the last 12-month period. Interest expense for the three months ended June 30, 2002 was $3.2 million, which represented a decrease of $1.5 million or 31.9% from $4.7 million for the same period of 2001. Net interest margin decreased to 5.09% for the second quarter of 2002, compared with 5.29% for the same period in 2001.

Net interest income before provision for loan losses was $16.2 million for the six months ended June 30, 2002, which represented an increase of $0.7 million, or 4.5% from net interest income of $15.5 million for the six months ended June 30, 2001. This increase was primarily due to an increase in interest-earning assets and a decrease in interest expense on deposits of $4.0 million or 44.9% to $4.9 million for the six months ended June 30, 2002 from $8.9 million for the same period of 2001.

Interest income for the six months ended June 30, 2002 was $22.4 million, which represented a decrease of $2.6 million or 10.4% over interest income of $25.0 million for the six months ended June 30, 2001. The decrease was the net result of a $5.2 million increase in average interest-earning assets (volume change) off-set by a $7.9 million decrease in the yield earned on those average interest-earning assets (rate change).

The yield on average interest-earning assets decreased to 6.80% for the six months ended June 30, 2002, from a yield of 9.02% for the six months ended June 30, 2001. This decrease is mainly due to a 200 basis point decrease in prime rate by the Federal Reserve Board (“FRB”) between these periods.

Interest expense for the six months ended June 30, 2002 was $6.1 million, which represented a decrease of $3.4 million or 35.8% over interest expense of $9.5 million for the same period of 2001. The decrease was the net result of a $1.5 million increase in average interest-bearing liabilities (volume change) off-set by a $4.9 million decrease in the cost of those interest-bearing liabilities (rate change).

The average cost of interest-bearing liabilities decreased to 2.76% for the six months ended June 30, 2002 from 5.02% for the six months ended June 30, 2001. This decrease is mainly due to decreases in interest rates noted above.

Net Interest Margin. Net interest margin was 4.94% for the six months ended June 30, 2002, down from 5.59% for the same period of 2001. The decrease in the net interest margin resulted primarily from a decrease in interest rates. Because we are asset -sensitive, which means our assets generally reprice more often than liabilities, the decline in interest rates affected our interest-earning assets at a faster rate than it did our deposits and other interest-bearing liabilities.

The following table presents our condensed average balance sheet information, together with interest rates earned and paid on the various sources and uses of funds for six-month periods indicated:


				June 30, 2002							June 30, 2001

						Interest		Average					Interest		Average
				Average		Income/		Yield/			Average		Income/		Yield/
				Balance		Expense		Cost			Balance		Expense		Cost

				(Dollars in thousands)
Interest earning assets:
	Net loans			$	535,207	$	19,397		7.25	%	$	409,315	$	20,489		10.01	%
	Other investments				2,389		43		3.60	%		5,994		205		6.87	%
	Securities				91,763		2,678		5.84	%		72,238		2,560		7.09	%
	Federal funds sold				28,687		247		1.72	%		67,899		1,787		5.26	%
			Total interest earning assets	$	658,046	$	22,365		6.80	%	$	555,446	$	25,041		9.02	%
Interest bearing liabilities:
	Demand, interest-bearing				85,391		762		1.78	%		88,873		1,665		3.75	%
	Savings				82,643		1,008		2.44	%		58,222		1,000		3.44	%
	Time certificates of deposit				236,619		3,149		2.66	%		217,460		6,225		5.73	%
	Subordinated notes				4,231		190		9.00	%		4,300		194		9.00	%
	FHLB borrowings				20,622		380		3.69	%		5,000		168		6.74	%
	Trust preferred securities				13,826		629		9.10	%		4,962		263		10.60	%
		Total interest bearing Liabilities		$	443,332	$	6,118		2.76	%	$	378,817	$	9,515		5.02	%
Net interest income						$	16,247						$	15,526
Net yield on interest-earning assets									4.94	%						5.59	%
Net interest spread									4.04	%						4.00	%
Average interest-earning assets to average interest-bearing liabilities									148.4	%						146.6	%

The following table illustrates the changes in our interest income, interest expense, amount attributable to variations in interest rates, and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the changes due to volume and the changes due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.


			Six Months Ended
			June 30, 2002 over June 30, 2001

			Net			Change due to
			Increase/
			(Decrease)			Rate			Volume

			(Dollars in thousands)
INTEREST INCOME:
	Interest and fees on loans			($1,092	)		($6,476	)	$	5,384
	Interest on other investments			(162	)		(72	)		(90	)
	Interest on securities			118			(499	)		617
	Interest on fed funds sold			(1,540	)		(829	)		(711	)

		Total Interest income:		($2,676	)		($7,876	)		$5,200

INTEREST EXPENSE
	Interest on demand deposits			($903	)		($840	)		($63	)
	Interest on savings			8			(340	)		348
	Interest on time certificates of deposits			(3,076	)		(3,583	)		507
	Interest on subordinated notes			(4	)		—			(4	)
	Interest on FHLB borrowings			212			(107	)		319
	Interest on trust preferred securities			366			(42	)		408

		Total Interest Expense:		($3,397	)		($4,912	)	$	1,515

Provision for Loan Losses

The provision for loan losses reflects our judgment of the current period cost associated with credit risk inherent in our loan portfolio. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that, in our judgment, is adequate to absorb losses inherent in our loan portfolio.

We made a $950,000 provision for loan losses in the first half of 2002. This was primarily due to the growth experienced in the loan portfolio. No provision was made for the first half of 2001. During the first half of 2001, we recovered approximately $1.2 million in loans previously charged off which were mostly due to recoveries on the loans from the Korea First Bank of New York acquisition. We believe that the allowance is sufficient for the known and inherent losses at June 30, 2002. Refer to Allowance and Provision for Loan Losses section for further discussion.

Non-interest Income

Non-interest income includes revenues earned from sources other than interest income. It is primarily comprised of service charges and fees on deposits accounts, fees received from letter of credit operations, and gains on sale of SBA loans and investment securities.

Non-interest income for the second quarter of 2002 was $4.2 million compared to $4.7 million for the corresponding quarter of 2001, which represented a decrease of $500,000, or 10.6%, primarily as a result of decrease in gains on sale of SBA loans, investment securities, and discontinued recognition of negative goodwill amortization of $331,000 during the quarter. Gains on sale of SBA loans and investment securities for the second quarter of 2002 were

approximately $424,000 and $473,000, respectively, compared to gains on sale of SBA loans and investment securities for the corresponding quarter of 2001 of $674,000 and $708,000, respectively. The service charge on deposits decreased approximately $78,000 or 4.8% to $1.5 million for the second quarter of 2002, from $1.6 million for the corresponding quarter of 2001. This was due to a closing of one major customer’s account in the Jackson Heights branch, which contributed a major portion of analysis fee income for the branch.

Non-interest income for the six months ended June 30, 2002 was $7.9 million compared to $7.8 million for the corresponding period of 2001, which represented a slight increase of approximately $94,000 or 1.2%. For the six months ended June 30, 2002, the decrease in service charges on deposits and discontinued recognition of negative goodwill amortization of $662,000 was offset by the increase in income from the gains on sale of SBA loans and investment securities. The detail of non-interest income is shown in the table below. At January 1, 2002, the amortization of negative goodwill was no longer allowed and the remaining negative goodwill of $4.2 million at December 31, 2001 was recognized as a cumulative effect of a change in accounting principle in the consolidated statement of income.

The summary of our non-interest income by category is illustrated below:


		Six								Six
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/02		Amount			Percent (%)			6/30/01

				(Dollars in thousands)
Non-interest income
	Service charges on deposits	$	2,952	$	(67	)		–2.2	%	$	3,019
	International service fee income		1,270		66			5.5	%		1,204
	Wire transfer fees		484		1			0.2	%		483
	Service fee income from SBA		270		54			25.0	%		216
	Earnings on cash surrender value		227		63			38.4	%		164
	Loan documentation fee		219		109			99.1	%		110
	Gain on sale of OREO		37		1			2.8	%		36
	Gain on sale of SBA loans		781		107			15.9	%		674
	Gain on sale of securities		1,045		337			47.6	%		708
	Gain on interest rate swaps		26		26			100	%		—
	Amortization of negative goodwill		—		(662	)		–100.0	%		662
	Other		545		16			3.0	%		529

Total non-interest income:		$	7,856	$	51			0.7	%	$	7,805

Non-interest Expense

Non-interest expense, which is comprised primarily of employees’ salaries and benefits, occupancy and other operating expenses for the second quarter of 2002 was $8.0 million compared to $6.6 million for the corresponding quarter of 2001. This represented an increase of $1.4 million or 21.2%. This increase was primarily due to an increase in salaries and benefit expenses, advertising and marketing expenses, and loan collection and other related expenses during the second quarter of 2002.

Salaries and benefit expenses increased $518,000 or 14.4% to $4.2 million during the second quarter of 2002, from $3.6 million for the corresponding quarter of 2001. Additional employees were hired since the second quarter of 2001 when new offices were opened (Cerritos

branch, Aroma branch, and loan production office in Atlanta). Furthermore, over the last 12 months, we have invested in the hiring of more experienced personnel for specialized areas, such as compliance, internal audit, and legal to accommodate our growth and to comply with the Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”) signed with the Office of the Comptroller of the Currency (the “OCC”) (see Regulatory Matter — Consent Order section below).

The advertising and marketing related expenses incurred during the second quarter of 2002 were $384,000, which represented an increase of $185,000 or 93.0% from $199,000 during the corresponding quarter of 2001. This increase was due to the increased efforts to further expose our image in California as well as New York through television advertisements. Credit related expenses which include loan collection expenses, were $250,000 during the second quarter of 2002, which represented an increase of $209,000 or 509.8% from $41,000 during the corresponding quarter of 2001. This increase was mainly due to expenses incurred related to collection from charged-off loans.

Salaries and employee benefits expenses for the six months of 2002 increased $1.0 million or 13.9% to $8.2 million from $7.2 million for the corresponding quarter of 2001. Net occupancy and equipment expenses also increased $300,000 or 12.0% to $2.8 million for the six months of 2002 from $2.5 million for the corresponding period of 2001 due to opening of new branches, as mentioned above. The increase in advertising and marketing related expenses is related to the television advertisements also mentioned above.

The summary of our non-interest expenses is illustrated below:


		Six								Six
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/02		Amount			Percent (%)			6/30/01

				(Dollars in thousands)
Non-interest expense
	Salaries and benefits	$	8,223	$	1,056			14.7	%	$	7,167
	Net occupancy		2,053		183			9.8	%		1,870
	Furniture and equipment		761		132			21.0	%		629
	Advertising & marketing related		598		203			51.4	%		395
	Corporate & regulatory fees		268		7			2.7	%		261
	Communications		299		18			6.4	%		281
	Data processing		781		28			3.7	%		753
	Professional fees		541		20			3.8	%		521
	Loan referral fees		251		71			39.4	%		180
	Office supplies & forms		171		(48	)		–21.9	%		219
	Directors’ fees		200		25			14.3	%		175
	Credit related expenses		426		114			36.5	%		312
	Amortization of goodwill		—		(37	)		–100.0	%		37
	Amortization of intangible assets		63		—			0	%		63
	Others		638		211			49.4	%		427

Total non-interest expense:		$	15,273	$	1,983			14.9	%	$	13,290

Provision for Income Taxes

The provision for income taxes was $1.5 million and $2.3 million on income before taxes and cumulative effect of a change in accounting principle of $4.4 million and $5.7 million for the three months ended June 30, 2002 and 2001, respectively. The provision for income taxes was $2.8 million and $3.9 million on income before taxes and cumulative effect of a change in accounting principle of $7.9 million and $10.0 million for the six months ended June 30, 2002 and 2001, respectively. The effective tax rate for the six months ended June 30, 2002 was 35.8%, compared with 39.2% for the six months ended June 30, 2001. This decrease was primarily due to permanent differences from loan recoveries relating to the charged-off loans of Korea First Bank of New York prior to the acquisition which neither we or Korea First Bank of New York has taken the tax benefit for and tax-exempt investment securities. The current portfolio of tax-exempt investment securities at June 30, 2002 was $35.1 million which yield an approximately 5.0%.

Financial Condition

At June 30, 2002, our total assets were $793.7 million, an increase of $114.3 million or 17.0%, from $679.4 million at December 31, 2001. The growth resulted primarily from increases in interest- earning assets.

Investment Security Portfolio

We classify our securities as held-to-maturity or available-for-sale under SFAS No. 115. Those securities that we have the ability and intent to hold to maturity are classified as “held-to-maturity securities”. All other securities are classified as “available-for-sale”. We owned no trading securities at June 30, 2002. Securities that are held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities that are available for sale are stated at fair value. The securities we currently hold are government-sponsored agency bonds, corporate bonds, collateralized mortgage obligations, U.S. government agency preferred stocks, and municipal bonds.

As of June 30, 2002, we had $4.4 million of held-to-maturity securities and $93.5 million of available-for-sale securities, compared to $4.3 million and $65.1 million at December 31, 2001, respectively. The total net unrealized loss on the available-for sale securities at June 30, 2002 was $56,000, compared to net unrealized gain of $558,000 at December 31, 2001. During the first half of 2002, we purchased a total of $65.8 million in available-for-sale securities and sold $31.1 million and recognized total gross gains of $1.0 million.

Securities with an amortized cost of $2.5 million were pledged to secure public deposits and for other purposes as required or permitted by law at June 30, 2002. Securities with an amortized cost of $33.2 million and $34.8 million were pledged to FHLB of San Francisco and State of California Treasurer’s Office, respectively, at June 30, 2002.

The following table presents our securities portfolio on the dates indicated:


				At June 30, 2002							At December 31, 2001

				Amortized		Market		Unrealized			Amortized		Market		Unrealized
				Cost		Value		Gain (Loss)			Cost		Value		Gain

				(Dollars in thousands)
Held-to-maturity
	U.S. Government Securities			$	1,654	$	1,651		($3	)	$	1,598	$	1,520		($78	)
	U.S. Corporate Notes				2,752		2,805		53			2,726		2,754		28

		Total held-to-maturity		$	4,406	$	4,456	$	50		$	4,324	$	4,274		($50	)
Available-for-Sale
	U.S. Government Securities			$	32,013	$	32,454	$	441		$	16,154	$	16,521	$	367
	Collateralized Mortgage Obligation				7,735		7,882		147			8,756		8,977		221
	Mortgage-backed Securities				5,976		6,020		44			1,102		1,104		2
	Asset-backed Securities				234		234		0			383		384		1
	Municipal Bonds				24,468		24,391		(77	)		4,369		4,304		(65	)
	U.S. Corporate Notes				12,460		12,078		(382	)		32,359		32,287		(72	)
	Korean Corporate Notes				—		—		—			1,451		1,555		104
	U.S. Agency Preferred Stocks				10,655		10,426		(229	)		—		—		—

			Total available-for-sale	$	93,541	$	93,485	$	(56	)	$	64,574	$	65,132	$	558

Total Investment Portfolio:				$	97,947	$	97,941	$	(6	)	$	68,898	$	69,406		($508	)

The amortized cost and estimated fair value of investment securities as of June 30, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


					June 30, 2002

									Weighted
					Amortized		Market		Average
Held-to-maturity					Cost		Value		Yield

					(Dollars in thousands)
U.S. Government:
		After ten years			$	1,654	$	1,651		6.97	%
U.S. Corporate Notes:
		One to five years				2,002		2,141		7.07	%
		After ten years				750		664		7.48	%

				Total held-to-maturity	$	4,406	$	4,456		7.10	%

Available-for-sale
	U.S. Government:
		One to five years			$	18,018	$	18,157		4.23	%
		Five to ten years				11,995		12,236		4.84	%
		After ten years				2,000		2,061		7.00	%
	Collateralized Mortgage Obligations:
		Five to ten years				852		891		6.75	%
		After ten years				6,883		6,992		5.43	%
	Mortgage-backed Securities:
		One to five years				2,964		2,970		4.70	%
		After ten years				3,012		3,050		6.48	%
	Asset-backed Securities:
		Five to ten years				234		234		4.38	%
	Municipal Bonds:
		After ten years				24,468		24,391		5.07	%
	U.S. Corporate Notes :
		Due within one year				5,490		5,518		7.29	%
		One to five years				998		1,024		5.81	%
		Five to ten years				1,853		1,624		8.01	%
		After ten years				4,119		3,912		9.16	%
	U.S. Agency Preferred Stocks:					10,655		10,425		6.20	%
			Total available-for-sale		$	93,541	$	93,485		4.79	%

Total Investment Portfolio					$	97,947	$	97,941		4.90	%

Loan Portfolio

We carry all loans (except for certain SBA loans held-for-sale) at face amount, less payments collected, net of deferred loan origination fees and the allowance for possible loan losses. SBA loans held-for-sale are carried at the lower of cost or market. Interest on all loans is accrued daily on a simple interest basis. Once a loan is placed on non-accrual status, accrual of interest is discontinued and previously accrued interest is reversed. Loans are placed on a non-accrual status when principal and interest on a loan is past due 90 days or more, unless a loan is both well-secured and in process of collection.

As of June 30, 2002, our gross loans (net of unearned fees), including loans held for sale, increased by $101.8 million or 20.0% to $610.7 million from $508.9 million at December 31, 2001. The commercial loans, which include domestic commercial, international trade finance, SBA loans, and equipment leasing, at June 30, 2002 increased by $12.2 million or 4.6% to $276.5 million from $264.3 million at December 31, 2001. Real estate and construction loans increased by $85.2 million or 42.9% to $283.8 million from $198.6 million at December 31, 2001. There has been an increasing demand on real estate loans during the past months since the interest rate remains at a 40 year low.

The following table illustrates our loan portfolio by amount and percentage of gross loans in each major loan category at the dates indicated:


			June 30, 2002						December 31, 2001

			Amount			Percent			Amount			Percent

			(Dollars in thousands)
Loan Portfolio Composition:
	Commercial loans *		$	276,526			45.2	%	$	264,283			51.9	%
	Real estate and construction loans			283,780			46.4	%		198,622			39.0	%
	Consumer loans			51,388			8.4	%		46,596			9.1	%

		Total loans outstanding		611,694			100.0	%		509,501			100.0	%
	Unamortized loan fees, net of costs			(956	)					(650	)
	Less: Allowance for loan losses			(6,834	)					(6,710	)

Net Loans Receivable			$	603,904					$	502,141

Includes loans held for sale of $6,337,806 at June 30, 2002 and $3,657,842 at December 31, 2001.

We do not normally extend lines of credit and make loan commitments to business customers for periods in excess of one year. We use the same credit policies in making commitments and conditional obligations as we do for extending loan facilities to our customers. We perform annual reviews of such commitments prior to the renewal. The following table shows our loan commitments and letters of credit outstanding at the dates indicated:


(dollars in thousands)	June 30, 2002		December 31, 2001

Loan commitments	$	129,600	$	146,201
Standby letters of credit		4,080		4,785
Commercial letters of credit		32,310		21,634

At June 30, 2002, our nonperforming assets (nonaccrual loans, loans 90 days or more past due and still accruing interest, restructured loans, and other real estate owned) were $1.7 million, which represented a decrease of $100,000 or 5.56% from $1.8 million at December 31, 2001. The nonperforming loans were $723,000, which represented a decrease of approximately $1.0 million or 55.56% from $1.8 million at December 31, 2002. This decrease was due to $1.5 million charge offs we made during the first half of 2002. During the second quarter of 2002, a total of $870,000 loans were restructured, which is a part of nonperforming assets.

The following table illustrates the composition of our nonperforming assets as of the dates indicated.


			June 30, 2002		December 31, 2001

			(Dollars in thousands)
Nonaccrual loans			$	699	$	1,720
Loan past due 90 days or more, still accruing				24		36

		Total Nonperforming Loans		723		1,756
Other real estate owned				57		—
Restructured loans				870		—

	Total Nonperforming Assets		$	1,650	$	1,756

Allowance for Loan Losses

The allowance for loan losses represents the amounts that we have set aside for the specific purpose of absorbing losses that may occur in our loan portfolio. The provision for loan losses is an expense charged against operating income and added to the allowance for loan losses. Actual loan losses or recoveries are charged or credited, respectively, directly to the allowance for loan losses.

We continue to carefully monitor the allowance of loan losses in relation to the size of our loan portfolio and known risks or problem loans. Central to our credit risk management is our credit risk rating system. Both internal, contracted external, and regulatory credit reviews are used to determine and validate loan risk grades. Our credit review system takes into consideration factors such as: borrower’s background and experience; historical and current financial condition; credit history and payment performance; industry and the economy; type, market value, and volatility of market value of collateral, and our lien position; and the financial strength of guarantors.

We use three different methodologies to determine the adequacy of the Allowance: (1) the Migration Analysis; (2) the Reasonableness Test; and (3) the Specific Allocation method.

The Migration Analysis is a formula method based on our actual historical net charge-off experience for each loan type pools and undisbursed commitments graded Pass (less cash secured loans), Special Mention, Substandard, and Doubtful.

We use an eight-quarter rolling average of historical losses detailing charge-offs, recoveries, and loan type pool balances to determine the estimated credit losses for non-classified and classified loans. Also, in order to reflect the impact of recent events, the eight-quarter rolling average has been weighted. The most recent four quarters have been assigned a 60% weighted average and the older four quarters have been assigned a 40% weighted average.

The resulting migration risk factors, or our established minimum risk factor for loan type pools that have no historical loss, whichever is greater, for each loan type pool is used to calculate our General Reserve. For loan type pools that have no historical loss, we have established a minimum risk factor for each loan grade Pass (0.40% - 1.0%), Special Mention (3.0% - - 5.0%), Substandard (7.0% - 15.0%), Doubtful (50.0%), and Loss (100.0%).

For unfunded/undisbursed commitments and contingent liabilities, we use 50.0% of the migration/minimum risk factor for loans graded Pass, due to the fact that in many cases the Bank has the option of freezing or withholding unfunded loan proceeds if the Bank becomes aware of a

problem or potential problem with the borrower. For graded loans (Special Mention, Substandard, Doubtful, and Loss), 100% of the migration/minimum risk factor is assigned to the unfunded/undisbursed commitments and contingent liabilities.

For identified impaired loans, if the calculated impairment is less than the migration risk factor, the migration risk factor is used. If the calculated impairment is greater than the migration risk factor, the General Reserve is increased by the amount of the difference.

Additionally, in order to systematically quantify the credit risk impact of trends and changes within the loan portfolio, we subjectively, within established parameters, make adjustments to the Migration Analysis for:

•      Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

•      Changes in national and local economic and business conditions and developments, including the condition of various market segments.

•      Changes in the nature and volume of the loan portfolio.

•      Changes in the experience, ability, and depth of lending management and staff.

•      Changes in the trend of the volume and severity of past due and classified loans; and trends in the volume of nonaccrual loans and troubled debt restructurings, and other loan modifications.

•      Changes in the quality of our loan review system and the degree of oversight by the Directors.

•      The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

•      Transfer risk on cross-border lending activities.

•      The effect of external factors such as competition and legal and regulatory requirements on the level of estimated losses in our loan portfolio.

Our parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the above factors. The matrix allows for three positive/decrease (Major, Moderate, and Minor), three negative/increase (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no impact (neutral) to our migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, we make the changes in accordance with the established parameters supported by narrative and/or statistical analysis. Our Credit Risk Matrix and the seven possible scenarios enable us to adjust the Migration Analysis as much as 50 basis points in either direction (positive or negative) for each loan type pool.

The Reasonableness Test is based on a national historical loss experience for each loan graded Special Mention, Substandard, Doubtful, and Loss; and an established minimum for loans graded Pass. The reserve factors applied under this method are: 1.0% for loans graded Pass;

5.0% for loans graded Special Mention; 15.0% for loans graded Substandard; 50.0% for loans graded Doubtful; and 100.0% for loans graded Loss. This method in not intended to substitute or override the Bank’s other methodologies, but rather is used for comparative purposes.

Under the Specific Allocation method, management establishes specific allowances for loans where management has identified significant conditions or circumstances related to a credit that are believed to indicate the probability that a loss may be incurred. The specific allowance amount is determined by a method prescribed by the Statement of Financial Accounting Standards (SFAS) No. 114, “Accounting by Creditors for Impairment of a Loan.” Our actual historical repayment experience and the borrower’s cash flow, together with an individual analysis of the collateral held on a loan, is taken into account in determining the allocated portion of the required Allowance under this method. As estimations and assumptions change, based on the most recent information available for a credit, the amount of the required specific allowance for a credit will increase or decrease. The Migration Analysis risk factor is used to determine the unallocated portion of the required Allowance under this method. By analyzing the identified credits on a quarterly basis, we are able to adjust a specific allowance based upon the most recent information that has become available.

The allowance for loan losses was $6.8 million at June 30, 2002, compared to $6.8 million at June 30, 2001. We recorded a provision of $950,000 for the first half of 2002 due to the increased loan portfolio. During the first half of 2002, we charged off $1.5 million and recovered $672,000. The allowance for loan losses was 1.12% of gross loans at June 30, 2002 compared to 1.47% at June 30, 2001. This decrease in the ratio was primarily due to an increase in new loans in the loan portfolio and a decrease in classified loans. The total classified loans at June 30, 2002 was $1.7 million, compared to $3.8 million at June 30, 2001.

Based on the calculation and continued loan recoveries, we believe the level of allowance as of June 30, 2002 is adequate to absorb the estimated losses from any known or inherent risks in the loan portfolio and the loan growth for the quarter. However, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances will not be reflected in increased provisions or loan losses in the future.

The following table shows the provisions made for loan losses, the amount of loans charged off, the recoveries on loans previously charged off together with the balance in the allowance for possible loan losses at the beginning and end of each period, the amount of average and total loans outstanding, and other pertinent ratios as of the dates and for the periods indicated:


					Six months			Six months
					Ended			Ended
					June 30, 2002			June 30, 2001

					(Dollars in thousands)
Loans:
		Average gross loans			$	542,046		$	416,670
		Total gross loans at end of period, net of unearned fees				610,738			464,778
Allowance:
		*Balance — beginning of period*				*6,710*			*7,881*
		Loans charged off:
			Commercial			1,389			2,039
			Consumer			109			106
			Real estate			—			83

				Total loans charged off		1,498			2,228
		Less: Recoveries on loan previous charged off
			Commercial			634			642
			Consumer			30			155
			Real estate			8			372

				Total recoveries		672			1,169

		Net loan charged-off				826			1,059
		Provision for loan losses				950			—
		Less: provision for losses on commitments and letters of credit				—			—

	*Balance — end of period*				$	*6,834*		$	*6,822*

RATIO
	Net loan charge-offs to average total loans					0.15	%		0.25	%
	Net loan charge-offs to total loans at end of period					0.14	%		0.23	%
	Allowance for loan losses to average total loans					1.26	%		1.64	%
	Allowance for loan losses to total loans at end of period					1.12	%		1.47	%
	Net loan charge-offs to beginning allowance					12.31	%		13.44	%
	Net loan charge-offs to provision for loan losses					86.95	%		N/A

Deposits and Other Borrowings

Deposits. Deposits are our primary source of funds to use in lending and investment activities. At June 30, 2002, our deposits increased by $67.9 million or 11.5% to $657.7 million from $589.8 million at December 31, 2001. Demand deposits totaled $225.7 million, which represented an increase of $26.6 million or 13.4% from $199.1 million at December 31, 2001. Time deposits over $100,000 totaled $195.9 million, which represented an increase of $37.7 million or 23.8% from $158.2 million at December 31, 2001. Other interest-bearing demand deposits, including money market and super now accounts, totaled $82.1 million, which represented a decrease of $2.0 million or 2.4% from $84.1 million at December 31, 2001.

At June 30, 2002, 34.3% of the total deposits were non-interest bearing demand deposits, 40.5% were time deposits, 12.7% were savings accounts, and 12.5% were interest bearing demand deposits. By comparison, at December 31, 2001, 33.8% of the total deposits were non-interest bearing demand deposits, 38.6% were time deposits, 14.3% were savings accounts, and 13.4% were interest bearing demand deposits.

At June 30, 2002, we had a total of $27.7 million in time deposits brought in through brokers and $20 million in time deposits from the State of California Treasurer’s Office, collateralized with our securities with an amortized cost of $34.8 million. The detail of those deposits is shown on the table below.

Brokered Deposits


Amount		Issue Date		Maturity Date		Rate

$	10,000,000		05/08/2002		08/08/2002		1.70	%
	3,000,000		05/08/2002		11/08/2002		1.95	%
	616,000		05/15/2002		11/15/2002		1.95	%
	10,000,000		05/22/2002		11/22/2002		2.05	%
	2,000,000		02/14/2001		02/14/2003		5.30	%
	2,090,000		02/16/2001		02/16/2006		5.65	%

$	27,706,000						2.42	%

State Deposits


Amount			Issue Date		Maturity Date		Rate

$	5,000,000			06/17/2002		12/16/2002		1.87	%
	5,000,000			04/22/2002		10/21/2002		2.00	%
	10,000,000			04/18/2002		10/21/2002		2.00	%

$		20,000,000						1.97	%

On September 30, 1999, we issued five-year subordinated capital notes in the aggregate amount of $4.3 million with a stated interest rate of 9.0%, maturing on September 30, 2004 but with a prepayment option commencing September 30, 2002. Interest on the notes is payable quarterly. We will pay out the principal at the end of three-year term on September 30, 2002, which is allowable as indicated in the note agreement. On April 9, 2002, a partial paydown of $150,000 was made to one of the debt holder upon his request. At June 30, 2002, $1.7 million, which represents 40% of the total outstanding amount of the notes which is $4.15 million, qualified as risk-based Tier 2 capital.

In October of 2000, we established a borrowing line with the FHLB of San Francisco. Advances may be obtained from the FHLB of San Francisco to supplement our supply of lendable funds. Advances from the FHLB of San Francisco are typically secured by a pledge of mortgage loan and/or securities, with a market value at least equal to outstanding advances plus investment in FHLB stocks. The following table shows our outstanding borrowings from FHLB at June 30, 2002.


FHLB Advances				Issue Date		Maturity Date		Rate

$		5,000,000			10/19/2000		10/19/2007		6.70	%
			5,000,000		02/04/2002		02/04/2004		3.39	%
			2,000,000		02/27/2002		02/27/2003		2.42	%
			3,000,000		02/28/2002		08/28/2002		2.02	%
			5,000,000		04/25/2002		03/31/2003		2.52	%
			5,000,000		04/26/2002		03/31/2004		3.53	%
		13,000,000			05/02/2002		01/27/2003		2.31	%

$	38,000,000								3.20	%

Nara Bancorp established special purpose trusts in 2001 and 2002 for the purpose of issuing Preferred Trust Securities (the “Trust Securities”). The trusts exist for the sole purpose of issuing Trust Securities and investing the proceeds thereof in Junior Subordinate Debentures issued by Nara Bancorp. Payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts or the redemption of the Junior Subordinated Debentures are guaranteed by Nara Bancorp to the extent the trusts have funds available thereof. The obligation of Nara Bancorp under the guarantees and the Junior Subordinate Debentures are subordinate and junior in right of payment to all indebtedness of Nara Bancorp and are structurally subordinated to all liabilities and obligations of Nara Bancorp’s subsidiaries. The table below summarizes the outstanding Junior Subordinated Debentures issued by each special purpose trust and the debentures issued by Nara Bancorp to each trust as of June 30, 2002.

TRUST SECURITIES AND JUNIOR

SUBORDINATED DEBENTURES

TRUST SECURITIES

PRINCIPAL

INTEREST

ISSUANCE

BALANCE OF

STATED

ANNUALIZED

DISTRIBUTION

TRUST NAME

DATE

AMOUNT

DEBENTURES

MATURITY

COUPON RATE

DATES

(DOLLARS IN THOUSANDS)

Nara Capital Trust I

March 2001

10,000

10,400

June 8, 2031

10.18

June 8 and December 8

Nara Statutory Trust II

March 2002

8,000

8,248

March 26, 2032

3 month LIBOR + 3.6%

March 26, June 26,

September 26 and

December 26

The Junior Subordinate Debentures are not redeemable prior to June 8, 2011 with respect to Nara Capital Trust I and March 26, 2007 with respect to Nara Statutory Trust II unless certain events have occurred. The proceeds from the issuance of the Trust Securities were used primarily for corporate purposes.

Stockholders’ Equity and Regulatory Capital

In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. We consider on an ongoing basis, among other things, cash generated from operations, access to capital from financial markets or the issuance of additional securities, including common stock or notes, to meet our capital needs. Total stockholders’ equity was $61.7 million at June 30, 2002. This represented an increase of $6.3 million or 11.4% over total stockholders’ equity of $55.4 million at December 31, 2001.

The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

At June 30, 2002, Tier 1 capital, stockholders’ equity less intangible assets, plus proceeds from the Trust Securities, was $77.5 million. This represented an increase of $14.1 million or 22.2% over total Tier 1 capital of $63.4 million at December 31, 2001. This increase was due to an additional $8.0 million in Trust Preferred Securities we sold and net income of $9.2 million

off-set by stock repurchases of $2.3 million and cash dividends of $1.1 million, of which $560,000 was paid in April and $562,000 was declared during the second quarter of 2002 to be paid in July of 2002. At June 30, 2002, we had a ratio of total capital to total risk-weighted assets of 12.62% and a ratio of Tier 1 capital to total risk weighted assets of 11.38%. The Tier 1 leverage ratio was 10.33% at June 30, 2002.

The following table presents the amounts of our regulatory capital and capital ratios, compared to regulatory capital requirements for adequacy purposes as of June 30, 2002 and December 31, 2001.


	As of June 30, 2002 (Dollars in thousands)

	Actual					Required					Excess

	Amount		Ratio			Amount		Ratio			Amount		Ratio

Leverage ratio	$	77,516		10.33	%	$	30,019		4.00	%	$	47,497		6.33	%
Tier 1 risk-based capital ratio	$	77,516		11.38	%	$	27,254		4.00	%	$	50,262		7.38	%
Total risk-based capital ratio	$	86,011		12.62	%	$	54,508		8.00	%	$	31,503		4.62	%


	As of December 31, 2001 (Dollars in thousands)

	Actual					Required					Excess

	Amount		Ratio			Amount		Ratio			Amount		Ratio

Leverage ratio	$	63,389		9.64	%	$	26,298		4.00	%	$	37,091		5.64	%
Tier 1 risk-based capital ratio	$	63,389		10.91	%	$	23,231		4.00	%	$	40,158		6.91	%
Total risk-based capital ratio	$	71,818		12.37	%	$	46,462		8.00	%	$	25,356		4.37	%

Regulatory Issues — Consent Order

On February 20, 2002, Nara Bank and its Board of Directors signed a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”) with the Office of the Comptroller of the Currency (the “OCC”). Nara Bank, without admitting to any allegations, entered into the Consent Order in connection with alleged deficiencies relating to the lack of sufficient internal controls, procedures and inadequate compliance with the Bank Secrecy Act. Failure to comply with a consent order permits the OCC to take various actions, including assessing civil monetary penalties or initiating termination of insurance proceedings, either of which, if taken against Nara Bank, would materially and adversely affect or render it impossible for us to continue our business and operations. In May 2002, the OCC completed a preliminary examination of Nara Bank to evaluate its progress in complying with the Consent Order. Although Nara Bank had not fully complied with the Consent Order, Management is taking all necessary steps to comply with the Consent Order, the Bank Secrecy Act and anti-money laundering regulations and anticipates being in full compliance with the Consent Order before the OCC’s re-evaluation, which is expected before the end of this year.

Item 3. Quantitative and qualitative disclosures about market risk

General

Market risk is the risk of loss to future earnings, to fair values, or to future cash flow that may result from changes in the price of a financial institution. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market risk sensitive instruments. Market risk is attributed to all market risk sensitive financial instruments, including securities,

loans, deposits, and borrowings, as well as derivative instruments. Our exposure to market risk is a function of our asset and liability management activities and our role as a financial intermediary in customer-related transactions. The objective of market risk management is to avoid excessive exposure of our earnings and equity to loss and to reduce the volatility inherent in certain financial instruments.

The management of market risk is governed by policies reviewed and approved annually by the Board of Directors of Nara Bank (“Board”). The Board delegates responsibility for market risk management to the Asset and Liability Management Committee (ALCO), which is composed of Nara Bank’s senior executives and other designated officers. ALCO makes changes in the mix of assets and liabilities. ALCO also reviews and approves market risk-management programs and market risk limits.

Liquidity and Interest Rate Sensitivity

Liquidity risk is the risk to earnings or capital resulting from our inability to fund assets when needed and liability obligations when they come due without incurring unacceptable losses. Liquidity risk includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect our ability to liquidate assets quickly and with a minimum loss of value. Factors considered in liquidity risk management are stability of the deposit base, marketability of our assets, maturity and availability of pledgeable investments, and customer demand for credits.

In general, our sources of liquidity are derived from financing activities which include the acceptance of customer and broker deposits, federal funds 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 and the routine liquidation of securities from principal paydown, maturity and sales. Our primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.

We manage liquidity risk by controlling the level of federal funds and by maintaining lines with correspondent banks, the Federal Reserve Bank, and Federal Home Loan Bank of San Francisco. The sale of investment securities available—for-sale can also serve as a contingent source of funds. Increases in deposit rates are considered a last resort as a means of raising funds to increase liquidity.

As a means of augmenting our liquidity, we have established federal funds lines with corresponding banks and Federal Home Loan Bank of San Francisco. At June 30, 2002, our borrowing capacity included $13.0 million in federal funds line facility and $27.3 million in unused FHLB advances. In addition to the lines our liquid assets include cash and cash equivalents, interest bearing deposits in other banks, federal funds sold and securities available for sale that are not pledged. The book value of the aggregate of these assets totaled $75.6 million at June 30, 2002, compared to $128.0 million at December 31, 2001. We believe our liquidity sources to be stable and adequate. At June 30, 2002, we are not aware of any information that was reasonably likely to have a material effect on our liquidity position.

Our results of operation are largely dependent upon our ability to manage interest rate risk, which is the impact of adverse fluctuations in interest rates on our net interest income and net portfolio value. Although in the normal course of business we manage other risks, such as credit and liquidity risk, management considers interest rate risk to be its most significant market

risk and could potentially have the largest material effect on our financial condition and results of operations.

The fundamental objective of the asset liability management process is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The Asset Liability Committee meets monthly to monitor the interest rate risk, the sensitivity of our assets and liabilities to those interest rate changes, investment activities and direct changes in the composition of the balance sheet. The Asset Liability Committee is also authorized to utilize a wide variety of off-balance sheet financial techniques to assist in the management of interest rate risk. We have used derivative instruments, primarily interest rate swap as part of our management of asset and liability positions in connection with our overall goal of minimizing the impact of interest rate fluctuations on our net interest margin or equity. These contracts are entered into for purposes of reducing our interest rate risk and not for trading purposes. At June 30, 2002, we had two interest rate swaps maturing on April 29, 2005 and April 30, 2007 with a notional value of $20 million each for a total of $40 million. On June 30, 2002 the fair value of the swaps was $418,938.

Our balance sheet is inherently asset sensitive, which means that assets generally reprice more often than liabilities. Since an asset-sensitive balance sheet tends to reduce net interest income when interest rates decline and to increase net interest income when interest rate rise, careful forecast of interest rate and security portfolio changes are used to manage the interest rate risk.

We use gap analysis monthly to measure the repricing mismatches between interest earning assets and interest bearing liabilities. The interest rate sensitivity gap is determined by subtracting the amount of interest bearing liabilities from the amount of interest earning assets that reprice in a specified time period. The gap analysis presented below indicates that assets that are rate sensitive within one year exceeded liabilities within that same period by $92.2 million at June 30, 2002.

The following table shows our gap position as of June 30, 2002.


		0-90 days		91-365 days			1-3 years		Over 3 yrs		Total

		(Dollars in thousands)
Total Investments *		$	22,545	$	9,236		$	18,757	$	71,852	$	122,390
Total Loans			484,316		12,255			27,417		87,706		611,694

Rate Sensitive Assets:			506,861		21,491			46,174		159,558		734,084

Deposits:
	Time Certificate of Deposit $100,000 or more		84,655		107,717			649		2,890		195,911
	Time Certificate of Deposit Under $100,000		34,652		34,669			966		1		70,288
	Money Market		72,622		—			—		—		72,622
	Now Accounts		9,493		—			—		—		9,493
	Savings Accounts		65,008		4,345			10,686		3,592		83,631
Other liabilities:
	Subordinated Notes		—		—			4,150		—		4,150
	FHLB Borrowings		3,000		20,000			10,000		5,000		38,000
	Trust Preferred Securities		—		—			—		17,432		17,432

Rate Sensitive Liabilities:		$	290,430	$	166,731		$	26,451	$	28,915	$	491,527

Net Gap Position			237,431		(145,240	)		19,723		130,643
Net Cumulative Gap Position			237,431		92,171			111,914		242,557

Includes investment securities, federal funds sold, FRB stock, FHLB stocks, and deposits with other banks

We also use a simulation analysis model quarterly to determine the sensitivity of net interest income and the economic value sensitivity of the balance sheet. The market value of equity is defined as the present value of assets minus the present value of liabilities. 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, 2002.


	Net Interest Income			Market Value
	Volatility			Volatility

Change in Interest Rates (Basis Points)	June 30, 2002

+200		12.56	%		-15.14	%
+100		6.27	%		-7.26	%
-100		-6.55	%		6.50	%
-200		-13.12	%		5.25	%

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to routine litigation incidental to our business, none of which is considered likely to have a material adverse effect on us.

Item 2. Changes in Securities and Use of Proceeds

        (a) None.

        (b) None.

        (c) On March 26, 2002, Nara Bancorp completed a $8.0 million offering of trust preferred securities, through Nara Statutory Trust II, issued as part of a private-placement pooled offering with several other financial institutions. Keefe, Bruyette & Woods, Inc. acted as placement agent for the pooled offering. For the period beginning on March 26, 2002 to June 25, 2002, the trust preferred securities bear the interest rate of 5.59 percent per annum payable quarterly. Beginning with June 26, 2002, the interest rate is adjusted quarterly beginning March 26, June 26, September 26 and December 26 during the 30-year term based on the 3-month LIBOR plus 3.60 percent. However, prior to March 26, 2007, the interest rate cannot exceed 11.0 percent. Nara Statutory Trust II used the proceeds from the sale of the trust preferred securities to purchase junior subordinated deferrable interest debentures of Nara Bancorp.

             The trust preferred offering was made pursuant to Rule 506 of Regulation D under the Securities Act of 1933 and was made to a limited number of accredited investors. Nara Bancorp incurred $271,000 in underwriting discounts and other fees related to this offering.

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a vote of Security Holders

On May 29, 2002, Nara Bancorp held its Annual Meeting of Stockholders. There were 5,603,437 shares entitled to vote, with 4,428,938 shares represented at the meeting in person or by proxy. The Annual Meeting of Stockholders of Nara Bancorp considered and voted upon the following matters:

1. Election of five persons to serve on the Board of Directors until the next annual meeting and until their successors are elected and qualified;

2. Amendment of the Certificate of Incorporation to increase the number of authorized shares of common stock from 10,000,000 to 20,000,000 shares; and

3. Ratification of the appointment of Deloitte & Touche LLP as Nara Bancorp’s independent auditors for the fiscal year ending December 31, 2002.

The election of five persons to serve on the Board of Directors was approved by a majority of votes entitled to vote at the Annual Meeting. Two nominees were approved with a total of 4,412,440 votes cast for, no votes against and 16,498 votes abstaining; two nominees were approved with a total of 4,421,940 votes cast for, no votes against and 6,998 votes abstaining and one nominee was approved with a total of 4,373,035 votes cast for, no votes against and 55,903 votes abstaining.

The amendment of the Certificate of Incorporation to increase the number of authorized shares of common stock from 10,000,000 to 20,000,000 shares was approved with a total of 4,219,405 votes cast for, 201,834 votes against and 7,699 votes abstaining.

The ratification of the appointment of Deloitte & Touche as the Corporation’s independent auditors for the fiscal year ending December 31, 2002 was approved with a total of 4,363,193 votes cast for, 56,345 votes against and 9,400 votes abstaining.

There were no other matters brought before the Annual Meeting that required a vote of stockholders.

Item 5. Other information

On July 30, 2002, two members of the Board of Directors of Nara Bank were appointed to serve on the Board of Directors of Nara Bancorp. The two directors, Yong Hwan Kim and John Park, will continue to serve on the Board of Directors of Nara Bank.

Mr. Yong Hwan Kim has served as a member of the Board of Director of Nara Bank since 1993, and Mr. John Park has served as a member of the Board of Director of Nara Bank since 1992.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The following exhibits constitute compensation plans or arrangements: 10.1, 10.2, 10.3. and 10.9.


Number		Description

2.1		Plan of Reorganization and Merger Agreement among Nara Bancorp, Inc., Nara Bank, N.A. and Nara Interim Bank, N.A.¹

2.2		Agreement and Plan of Reorganization between Nara Bank, N.A., Korea First Bank of New York and Korea First Ltd., dated November 9, 1999²

3.1		Certificate of Incorporation of Nara Bancorp, Inc.¹


Number		Description

3.2		Bylaws of Nara Bancorp, Inc.¹

3.3		Amended Bylaws of Nara Bancorp, Inc.*

4.1		Form of Stock Certificate of Nara Bancorp, Inc.³

4.2		Subordinated Note Purchase Agreement⁴

4.3		Warrant Agreement⁵

4.4		Warrant Certificate Agreement⁵

4.5		Amended and Restated Trust Agreement of Trust dated March 28, 2001, by and among Delaware Trustee, Wilmington Trust Company as Property Trustee, the Nara Bancorp and the Administrative Trustees named therein⁹

4.6		Indenture dated March 28, 2001 between the Nara Bancorp and Wilmington Trust Company as Debenture Trustee⁹

4.7		Common Securities Guarantee Agreement dated March 28, 2001 of the Nara Bancorp⁹

4.8		Capital Securities Guarantee Agreement dated March 28, 2001 between Nara Bancorp and Wilmington Trust Company as Guarantee Trustee⁹

4.9		Amended and Restated Declaration of Trust dated March 26, 2002, by and among State Street Bank and Trust Company of Connecticut, National Association, as Institutional Trustee, Nara Bancorp, Inc., as sponsor.⁹

4.10		Indenture dated March 26, 2002 between the Nara Bancorp and State Street Bank and Trust Company of Connecticut, National Association as Trustee⁹

4.11		Guarantee Agreement dated March 26, 2002 be and between Nara Bancorp and State Street Bank and Trust Company of Connecticut, National Association⁹

10.1		Nara Bancorp, Inc. 2001 Nara Bank 2000 Continuation Long Term Incentive Plan⁵

10.2		Nara Bancorp, Inc. 2001 Nara Bank 1989 Continuation Stock Option Plan⁵

10.3		Nara Bank, N.A. Deferred Compensation Plan⁹

10.4		Lease for premise located at 118 Broad Avenue, Palisades Park, New Jersey⁷

10.5		Lease for premise located at 29 West 30th Street, New York, New York⁷


Number		Description

10.6		Lease for premise located at 138-02 Northern Boulevard., Flushing, New York⁷

10.7		Lease for premises located at 2250 Broadway, Oakland, California⁷

10.8		Lease for premises located at 3701 Wilshire Blvd. Los Angeles, California . (incorporated herein by reference to Exhibit 10.8 on 10K filed with the Securities and Exchange Commission on March 31, 2000)

10.9		Employment Agreement between Benjamin B. Hong and Nara Bank, N.A.⁴

10.10		Consent Order issued by the OCC⁸

10.11		Tax Sharing Agreement⁹

10.12		Affiliate Agreement⁹

10.13		Form of Nara Bancorp, Inc Option Agreement with Nara Bancorp Directors (entered into by directors Ki Suh Park, Jesun Paik, and Steve Kim)⁹

21.1		List of Subsidiaries⁹

1.		Incorporated by reference to Exhibits filed with our Statement on Form S-4 filed with the Commission on November 16, 2000.




2.		Incorporated by reference to Exhibits filed with our Statement on Form S-4 filed with the Commission on March 31, 2000.




3.		Incorporated by reference to Exhibits filed with our Statement on Form S-4 filed with the Commission on December 5, 2000.




4.		Incorporated by reference to Exhibits filed with our Statement on Form 10-Q filed with the Commission on May 15, 2001.




5.		Incorporated by reference to Exhibits filed with our Statement on Form S-8 filed with the Commission on April 19, 2001.




6.		Incorporated by reference to Exhibits filed with our Statement on Form 10-K filed with the Commission on March 31, 2000.




7.		Incorporated by reference to Exhibits filed with our Statement on Form 10-K filed with the Commission on April 2, 2001.




8.		Incorporated by reference to Exhibits filed with our Statement on Form 8-K filed with the Commission on February 26, 2002.




9.		Incorporated by reference to Exhibits filed with our Statement on Form 10K filed with the Commission on April 2, 2002.




*		Filed herein

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements 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.


			NARA BANCORP, INC.
Date: August 14, 2002	By	/s/ Bon T. Goo

			Bon T. Goo Chief Financial Officer (Principal financial or accounting officer and duly authorized signatory)

CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of Nara Bancorp, Inc (the “Company”) that the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.


Date: August 14, 2002	By	/s/ Benjamin Hong

			Benjamin Hong President and Chief Executive Officer



	By	/s/ Bon T. Goo

			Bon T. Goo Executive Vice President and Chief Financial Officer

•		Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

•		Changes in national and local economic and business conditions and developments, including the condition of various market segments.

•		Changes in the nature and volume of the loan portfolio.

•		Changes in the experience, ability, and depth of lending management and staff.

•		Changes in the trend of the volume and severity of past due and classified loans; and trends in the volume of nonaccrual loans and troubled debt restructurings, and other loan modifications.

•		Changes in the quality of our loan review system and the degree of oversight by the Directors.

•		The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

•		Transfer risk on cross-border lending activities.

•		The effect of external factors such as competition and legal and regulatory requirements on the level of estimated losses in our loan portfolio.


	(a) None.

	(b) None.

	(c) On March 26, 2002, Nara Bancorp completed a $8.0 million offering of trust preferred securities, through Nara Statutory Trust II, issued as part of a private-placement pooled offering with several other financial institutions. Keefe, Bruyette & Woods, Inc. acted as placement agent for the pooled offering. For the period beginning on March 26, 2002 to June 25, 2002, the trust preferred securities bear the interest rate of 5.59 percent per annum payable quarterly. Beginning with June 26, 2002, the interest rate is adjusted quarterly beginning March 26, June 26, September 26 and December 26 during the 30-year term based on the 3-month LIBOR plus 3.60 percent. However, prior to March 26, 2007, the interest rate cannot exceed 11.0 percent. Nara Statutory Trust II used the proceeds from the sale of the trust preferred securities to purchase junior subordinated deferrable interest debentures of Nara Bancorp.

	The trust preferred offering was made pursuant to Rule 506 of Regulation D under the Securities Act of 1933 and was made to a limited number of accredited investors. Nara Bancorp incurred $271,000 in underwriting discounts and other fees related to this offering.

	1.		Election of five persons to serve on the Board of Directors until the next annual meeting and until their successors are elected and qualified;

	2.		Amendment of the Certificate of Incorporation to increase the number of authorized shares of common stock from 10,000,000 to 20,000,000 shares; and