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, 2003 or


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

For the transition period from to

Commission File Number: 000-50245

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)

(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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of July 31, 2003, there were 10,928,668 outstanding shares of the issuer’s Common Stock, $0.001 par value.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to unaudited 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
	Item 4. Controls and Procedures
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
CERTIFICATION
INDEX TO EXHIBITS
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 32

Table of Contents


		Page
PART I FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Statements of Financial Condition - June 30, 2003 and December 31, 2002 (unaudited)		3
	Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2003 and 2002 (unaudited)		5
	Condensed Consolidated Statement of Stockholders’ Equity - Three and Six Months Ended June 30, 2003 and 2002 (unaudited)		7
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 (unaudited)		8
	Notes to Unaudited Consolidated Financial Statements		10
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		40
Item 4.	CONTROLS AND PROCEDURES		43
PART II OTHER INFORMATION
Item 1.	Legal Proceeding		44
Item 2	Change in Securities and Use of Proceeds		44
Item 3.	Defaults upon Senior Securities		44
Item 4.	Submission of Matters to a vote of Securities Holders		44
Item 5.	Other information		44
Item 6.	Exhibits and Reports on Form 8-K		44
	Signature		45
	Certification		46
	Index to Exhibits		48

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

NARA BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


			June 30,		December 31,

			2003		2002

ASSETS
Cash and due from banks			$	32,196,585	$	31,442,728
Federal funds sold				2,200,000		73,300,000
Term fed funds sold				30,000,000		—

	Total cash and cash equivalent			64,396,585		104,742,728
Interest-bearing deposits in other banks				95,000		95,000
Securities available for sale, at fair value				143,638,738		101,622,635
Securities held to maturity, at amortized cost (fair value:
		June 30, 2003 - $3,048,309; December 31, 2002- $2,926,750)		2,808,215		2,779,618
Interest-only strips, at fair value				381,622		273,219
Interest rate swaps, at fair value				6,314,402		3,444,780
Loan held for sale, at the lower of cost or market				7,234,871		6,337,519
Loans receivable, net of allowance for loan losses (June 30, 2003 - $10,047,848; December 31, 2002 - $8,457,917)				792,767,025		715,019,110
Federal Reserve Bank stock, at cost				1,263,300		963,465
Federal Home Loan Bank Stock, at cost				4,675,000		3,783,400
Premises and equipment				4,938,071		4,995,052
Accrued interest receivable				4,512,803		4,195,498
Servicing assets				2,561,265		2,078,790
Deferred income taxes, net				3,926,802		4,908,701
Customers’ acceptance liabilities				6,358,428		5,580,838
Cash surrender value, of life insurance				14,023,079		13,744,037
Goodwill and intangible assets, net				2,246,572		2,394,322
Other assets				5,283,888		2,290,304

TOTAL			$	1,067,425,666	$	979,249,016


See notes to consolidated financial statements		(Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY


					June 30,			December 31,

					2003			2002

LIABILITIES:
	Deposits:
		Noninterest-bearing			$	263,255,817		$	236,922,962
		Interest-bearing:
			Money market and other			79,384,385			83,868,595
			Savings deposits			155,677,408			141,281,701
			Time deposits of $100,000 or more			277,488,345			268,167,603
			Other time deposits			86,842,696			86,677,370

				Total deposits		862,648,651			816,918,231
Borrowing from Federal Home Loan Bank						85,000,000			65,000,000
Fed Funds Purchased						8,500,000			-
Accrued interest payable						3,405,747			2,860,627
Acceptances outstanding						6,358,428			5,580,838
Trust Preferred Securities						22,298,336			17,412,755
Other liabilities						6,135,114			6,107,498

				Total liabilities		994,346,276			913,879,949
Commitments and Contingencies (Note 10)
Stockholders’ equity:
	Common stock, $0.001 par value; authorized, 20,000,000 shares; issued and outstanding, 10,790,386 and 10,690,630 shares at June 30, 2003 and December 31, 2002 respectively					10,790			10,690
	Capital surplus					33,521,642			32,930,307
	Deferred compensation					(14,056	)		0
	Retained earnings					35,478,756			29,903,338
	Accumulated other comprehensive income – unrealized gain on interest rate swap, securities available for sale and interest-only-strips, net of taxes of $2,721,504 and $1,682,704 at June 30, 2003 and December 31, 2002					4,082,258			2,524,732

				Total stockholders’ equity		73,079,390			65,369,067

				Total liabilities and stockholders’ equity	$	1,067,425,666		$	979,249,016

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2003 and 2002
(Unaudited)


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

				2003			2002		2003			2002

INTEREST INCOME:
	Interest and fees on loans			$	12,494,291		$	10,214,402	$	23,961,850		$	19,203,145
	Interest on securities				1,507,544			1,460,338		2,910,358			2,678,247
	Interest on interest rate swaps				816,472			168,000		1,649,472			168,000
	Interest on other investments, including TCD with other financial institutions				85,799			27,640		134,789			42,760
		Interest on federal funds sold			202,387			92,434		391,303			272,645

			Total interest income		15,106,493			11,962,814		29,047,772			22,364,797

INTEREST EXPENSE:
	Interest expense on deposits				3,314,022			2,432,740		6,609,936			4,918,761
	Interest expense on trust preferred				303,604			367,543		722,602			629,496
	Interest expense on borrowings				465,322			354,061		819,302			569,978

			Total interest expense		4,082,948			3,154,344		8,151,840			6,118,235

			Net interest income before provision for loan losses		11,023,545			8,808,470		20,895,932			16,246,562
Provision for loan losses					1,100,000			600,000		2,400,000			950,000

Net interest income after provision for loan losses					9,923,545			8,208,470		18,495,932			15,296,562

NON-INTEREST INCOME:
	Service charges on deposit accounts				1,877,229			1,510,619		3,601,177			2,952,551
	Other charges and fees				1,764,019			1,653,758		3,387,763			2,979,846
	Gain on sale of securities avaliable-for sale				27,525			473,107		186,282			1,045,108
	(Loss) gain on sale of fixed assets				(27,024	)		25,599		(15,503	)		34,184
	Gains on sale of other real estate owned				79,552			36,798		77,521			36,798
	Gain on interest rate swaps				280,067			26,370		427,924			26,370
	Gain on sale of SBA loans				836,961			424,330		2,037,183			781,221

			Total non-interest income		4,838,329			4,150,581		9,702,347			7,856,078

NON-INTEREST EXPENSE:
	Salaries, wages and employee benefits				5,248,348			4,152,749		9,808,932			8,223,178
	Net occupancy expense				1,057,795			1,041,120		2,110,082			2,052,935
	Furniture and equipment expense				362,910			382,740		738,973			761,384
	Advertising and marketing expense				324,058			383,618		658,792			598,143
	Communications				149,252			128,982		298,453			299,216
	Data and item processing expense				540,486			374,148		1,006,159			780,519
	Professional fees				456,998			489,539		910,178			791,568
	Office supplies and forms				94,426			86,915		178,030			171,490
	Other				857,896			932,155		1,662,713			1,594,494

			Total non-interest expense		9,092,169			7,971,966		17,372,312			15,272,927

Income before income taxes and cumulative effect of a change in accounting principle					5,669,705			4,387,085		10,825,967			7,879,713
Income tax provision					2,254,186			1,545,000		4,173,524			2,825,000

Income before cumulative effect of a change in accounting principle					3,415,519			2,842,085		6,652,443			5,054,713
Cumulative effect of change in accounting principle					—			—		—			4,192,334

Net Income				$	3,415,519		$	2,842,085	$	6,652,443		$	9,247,047

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended, June 30, 2003 and 2002
(Unaudited)


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

		2003		2002		2003		2002

Earnings Per Share:
Income before cumulative effect of a change in accounting principle
	Basic	$	0.32	$	0.26	$	0.62	$	0.45
	Diluted		0.30		0.24		0.59		0.43
Cumulative effect of a change in accounting principle
	Basic	$	—	$	—	$	—	$	0.38
	Diluted		—		—		—		0.36
Net income
	Basic		0.32		0.26		0.62		0.83
	Diluted	$	0.30	$	0.24	$	0.59	$	0.79

See notes to consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2003 and 2002
(Unaudited)


																		Accumulated
			Number of															Other
			Shares			Common			Capital			Deferred			Retained			Comprehensive			Comprehensive
			Outstanding			Stock			Surplus			Compensation			Earnings			Income (Loss)			Income
BALANCE, JANUARY 1, 2003				10,690,630		$	10,691		$	32,930,307		$	—		$	29,903,338		$	2,524,732
Warrants exercised				48,100			48			313,052
Stock options exercised				49,656			49			255,285
Issuance of restricted stock				2,000			2			22,998			(23,000	)
Deferred compensation													8,944
Cash dividend declared																(1,077,025	)
Comprehensive income:
	Net income															6,652,443					$	6,652,443
	Other comprehensive income:
		Net change in unrealized gain on securities available for sale, interest-only-strips and interest rate swap — net of tax																	1,557,525			1,557,525

Comprehensive income																					$	8,209,968

BALANCE, JUNE 30, 2003				10,790,386		$	10,790		$	33,521,642		$	(14,056	)	$	35,478,756		$	4,082,257

BALANCE, JANUARY 1, 2002				11,145,674			11,146		$	32,989,549		$	—		$	22,075,612		$	356,674
Warrants exercised				79,100			79			474,560
Stock options exercised				12,000			12			47,984
Stock repurchased				(205,172	)		(205	)		(2,349,571	)
Cash dividend declared																(1,122,183	)
Comprehensive income:
	Net income															9,247,047					$	9,247,047
	Other comprehensive income:
		Net change in unrealized gain on securities available for sale, interest-only-strips and interest rate swaps - net of tax																	(67,576	)		(67,576	)

Comprehensive income																					$	9,179,471

BALANCE, JUNE 30, 2002				11,031,602		$	11,032		$	31,162,522		$	—		$	30,200,476		$	289,098

See notes to consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)


				2003			2002
CASH FLOW FROM OPERATING ACTIVITIES
	Net income			$	6,652,443		$	9,247,047
	Adjustments to reconcile net income to net cash provided (used in ) by operating activities:
		Depreciation, amortization, and accretion			827,179			493,313
		Provision for loan losses			2,400,000			950,000
		Provision for other real estate owned			—			16,414
		Proceeds from sales of SBA loans			28,408,725			13,089,164
		Originations of SBA loans held for sale			(40,491,300	)		(24,228,220	)
		Net gain on sales of SBA loans			(2,037,183	)		(781,221	)
		Gain on sales of securities available for sale			(186,282	)		(1,045,108	)
		Loss (gain) on sales of fixed assets			15,503			(34,184	)
		Gain on sale of other real estate owned			(77,521	)		(36,798	)
		Gain on interest rate swaps			(427,924	)		(26,370	)
		(Increase) decrease in accrued interest receivable			(317,305	)		(506,839	)
		Deferred income taxes			(56,451	)		—
		Decrease (increase) in other assets			(3,601,452	)		(616,813	)
		(Decrease) increase in accrued interest payable			545,120			(764,855	)
		Increase (decrease) in other liabilities			8,553,729			1,077,243
		Cumulative effect of a change in accounting principle			—			(4,192,334	)

			Net cash provided by (used in) operating activities		207,281			(7,359,561	)

CASH FLOWS FROM INVESTING ACTIVITIES
		Net increase in loans receivable			(66,889,965	)		(90,885,850	)
		Net increase in cash surrender value			(279,042	)		(162,786	)
		Purchase of premises and equipment			(535,800	)		(466,855	)
		Purchase of investment securities available for sale			(69,782,436	)		(65,756,423	)
		Proceeds from sale of other real estate owned			166,805			56,336
		Proceeds from sale of equipment			3,908			24,000
		Proceeds from sale of investment securities available for sale			3,539,063			31,108,761
		Proceeds from matured or called investment securities available for sale			24,378,364			6,776,452
		Purchase of Federal Home Loan Bank Stock			(891,600	)		(1,640,200	)
		Purchase of Federal Reserve Stock			(299,835	)		(45,165	)
		(Decrease) increase in interest-only strip			(59,715	)		4,665
		Proceeds from matured interest-bearing deposits in other banks			—			198,000

		Net cash used in investing activities			(110,650,253	)		(120,789,065	)


			2003			2002
CASH FLOWS FROM FINANCING ACTIVITIES
		Net increase in deposits		45,730,420			67,948,042
		Proceeds from issuance of Trust Preferred Securities, net		4,875,000			7,759,000
		Payment of cash dividend		(1,077,025	)		(560,344	)
		Paydown on subordinated notes		—			(150,000	)
		Repurchase of common stock		—			(2,349,674	)
		Proceeds from Federal Home Loan Bank borrowing		20,000,000			33,000,000
		Proceeds from warrants exercised		313,100			474,600
		Proceeds from stock option		255,334			47,990

		Net cash provided by financing activities		70,096,829			106,169,614

	NET DECREASE IN CASH AND CASH EQUIVALENTS			(40,346,143	)		(22,078,012	)
	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			104,742,728			72,594,996

	CASH AND CASH EQUIVALENTS, END OF PERIOD		$	64,396,585		$	50,516,984

	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
		Interest Paid	$	6,150,826		$	6,883,090
		Income Taxes Paid	$	4,125,275		$	850,400
	SUPPLEMENTAL SCHEDULE OF NONCASH INVESTMENT ACTIVITIES
		Transfer of loans to other real estate owned	$	15,601		$	93,001

See notes to consolidated financial statements

Notes to unaudited 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 wide 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 , Atlanta, and Virginia.

2. Basis of Presentation

Our consolidated financial statements included herein have been prepared without an 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. In addition, we have the following consolidated subsidiaries which issued trust preferred securities and purchased Nara Bancorp’s junior subordinated deferral interest debentures: Nara Bancorp Capital Trust I, Nara Statutory Trust II, and Nara Capital Trust III. We also created Nara Real Estate Trust (“REIT”), a Maryland real estate investment trust and wholly owned second-tier operating subsidiary of Nara Bank. All 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, 2003. Certain reclassifications have been made to prior period figures in order to conform to the June 30, 2003 presentation. The results of operations for the interim period 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 2002 Annual Report on Form 10-K.

3. Dividends

On May 28, 2003, we declared a $0.05 per share cash dividend paid on July 10, 2003 to stockholders of record at the close of business on June 30, 2003.

4. Stock Splits

On February 14, 2003, Nara Bancorp announced that its Board of Directors approved a two-for-one stock split of its common stock, effected in the form of a 100% stock dividend, which was payable on March 17, 2003 to stockholders of record on close of business on March 3, 2003. The effect of this dividend is that Stockholders received one additional share of Nara Bancorp common stock for each share owned. All per share amounts and number of shares outstanding in this report have been retroactively restated for this stock split.

5. 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 outstanding, 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 less than the current market value of our common stock.

The following table shows how we computed basic and diluted earnings per share (“EPS”) for the periods ended June 30, 2003 and 2002.


					For the six months ended June 30,

			2003						2002
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		(Amount)		(Numerator)		(Denominator)		(Amount)

Before cumulative effect of a change in accounting Principle
Basic EPS	$	6,652,443		10,734,070	$	0.62	$	5,054,713		11,135,438	$	0.45
Effect of Dilutive Securities:
Options				537,193						583,366
Restricted stock				1,334						—
Warrants		—		52,573				—		83,092

Diluted EPS	$	6,652,443		11,325,170	$	0.59	$	5,054,713		11,801,896	$	0.43

Cumulative effect of a change in accounting principle
Basic EPS	$	—		—	$	—	$	4,192,334		11,135,438	$	0.38
Options				—						583,366
Warrants		—		—				—		83,092

Diluted EPS	$	—		—	$	—	$	4,192,334		11,801,896	$	0.36

Net income
Basic EPS	$	6,652,443		10,734,070	$	0.62	$	9,247,047		11,135,438	$	0.83
Effect of Dilutive Securities:
Options				537,193						583,366
Restricted stock				1,334						—
Warrants		—		52,573						83,092

Diluted EPS	$	6,652,443		11,325,170	$	0.59	$	9,247,047		11,801,896	$	0.79


					For the three months ended June 30,

			2003						2002
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		(Amount)		(Numerator)		(Denominator)		(Amount)

Basic EPS	$	3,415,519		10,757,943	$	0.32	$	2,842,085		11,121,118	$	0.26
Effect of Dilutive Securities:
Options				531,737						621,280
Restricted Stock				1,334						—
Warrants		—		40,689				—		78,006

Diluted EPS	$	3,415,519		11,331,703	$	0.30	$	2,842,085		11,820,404	$	0.24

6. Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employees compensation plans at fair value. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of our stock at the date of grant over the grant price.

We have adopted the disclosure only provisions of SFAS No. 123. Had compensation cost for our stock-based compensation plans been determined base on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, our net income would have been reduced to the pro forma amounts as follows:


		For the three months ended June 30,				For the six months ended June 30,

		2003		2002		2003		2002
Before cumulative effect of a change in accounting principle:
Net income—as reported		$	3,415,519	$	2,842,085	$	6,652,543	$	5,054,713
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards—net of related tax effects			49,129		38,269		97,718		76,118

Pro forma net income		$	3,366,390	$	2,803,816	$	6,554,825	$	4,978,595

EPS:
	Basic—as reported	$	0.32	$	0.26	$	0.62	$	0.45
	Basic—pro forma		0.31		0.25		0.61		0.45
	Diluted—as reported	$	0.30	$	0.24	$	0.59	$	0.43
	Diluted—pro forma		0.30		0.24		0.58		0.42


		For the three months ended June 30,				For the six months ended June 30,

		2003		2002		2003		2002
After cumulative effect of a change in accounting principle:
Net income—as reported		$	3,415,519	$	2,842,085	$	6,652,543	$	9,247,047
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards—net of related tax effects			49,129		38,269		97,718		76,118

Pro forma net income		$	3,366,390	$	2,803,816	$	6,554,825	$	9,170,929

EPS:
	Basic—as reported	$	0.32	$	0.26	$	0.62	$	0.83
	Basic—pro forma		0.31		0.25		0.61		0.82
	Diluted—as reported	$	0.30	$	0.24	$	0.59	$	0.79
	Diluted—pro forma		0.30		0.24		0.58		0.78

The weighted-average fair value of options granted during second quarter of 2003 and 2002 was $4.81 and $4.31, respectively. The fair value of options granted under our stock option plans during the second quarter of 2003 and 2002 was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used: 0.5% dividends yield, volatility of 35.10% (2003) and 30.31% (2002), risk-free interest rate of 2.3% (2003) and 5.6% (2002) and expected lives of three to five years.

7. SBA

Certain Small Business Administration (“SBA”) loans that we have the intent to sell prior to maturity have been designated as held for sale at origination and are recorded at the lower of cost or market value on an aggregate basis. A valuation allowance is established if the aggregate market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. A portion of the premium on sale of

SBA loans is recognized as gain on sale of loans at the time of the sale. The remaining portion of the premium (relating to the portion of the loan retained) is deferred and amortized over the remaining life of the loan as an adjustment to yield. Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are recorded based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discounted rate based on the related note rate, plus 1 to 2%. Servicing assets are amortized in proportion to and over the period of estimated future net servicing income.

We periodically evaluate servicing assets for impairment. At June 30, 2003, the fair value of servicing assets was determined using a weighted-average discount rate of 6.8% and a prepayment speed of 10.9%. At June 30, 2002, the fair value of servicing assets was determined using a weighted-average discount rate of 7.5% and a prepayment speed of 10.8%. For purposes of measuring impairment, servicing assets are stratified by loan type. An impairment is recognized if the carrying value of servicing assets exceeds the fair value of the stratum. The fair values of servicing assets were approximately $2,986,000 and $2,433,000 at June 30, 2003 and December 31, 2002, respectively.

An interest-only strip is recorded based on the present value of the excess of the total future income from serviced loans over the contractually specified servicing fee, calculated using the same assumptions as used to value the related servicing assets. Such interest-only strip is accounted for at the estimated fair value, with unrealized gain or loss, net of tax, recorded as a component of accumulated other comprehensive income (loss).

We offer direct financing leases to customers whereby the assets leased are acquired without additional financing from other sources. Direct financing leases are carried net of unearned income, unamortized nonrefundable fees and related direct costs associated with the origination or purchase of leases.

8. Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued 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. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead it must be tested for impairment until its life is determined to no longer be indefinite. We adopted SFAS No. 142 on January 1, 2002.

In connection with the transitional impairment evaluation required by SFAS No. 142, we performed an assessment of whether there was an indication that goodwill was impaired as of January 1, 2002. We completed our evaluation of any transitional impairment of goodwill and determined that there was no impairment as of January 1, 2002. We also tested goodwill for impairment as of December 31, 2002, noting no impairment in the recorded goodwill of $874,968. No conditions indicated any further impairment as of June 30, 2003.

At December 31, 2001, we had negative goodwill (the amount by which the fair value 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 the consolidated statement of income as the cumulative effect of a change in accounting principle on January 1, 2002. The recognition of negative goodwill is not tax effected, as no deferred taxes were allocated to it in the initial purchase accounting. We will continue to amortize its other intangible assets, representing core deposit intangibles, over the original estimated useful life of seven years.

As of June 30, 2003, intangible assets that continue to be subject to amortization include core deposits of $1,371,604 (net of $696,884 accumulated amortization) and servicing assets of $2,561,266 (net of $748,511

accumulated amortization). Amortization expense for such intangible asset was $342,052 for the six months ended June 30, 2003. Estimated amortization expense for intangible assets for the remainder of 2003 and the five succeeding fiscal years follows:


2003 (remaining six months)	$	345,664
2004		653,040
2005		574,179
2006		437,279
2007		399,152
2008 thereafter		1,523,556

9. Recent Accounting Pronouncements

SFAS No. 148, Accounting for Stock-based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123, amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148 are effective for annual financial statements for fiscal years ending after December 15, 2002, and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We have not determined whether we will adopt the fair value based method of accounting for stock-based employee compensation.

FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107, and rescission of FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, in November 2002. FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of such interpretation did not have a material impact on our results of operations, financial position or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which clarifies and amends financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We do not believe the adoption of such statement will have a material impact on its results of operations, financial position or cash flows

The FASB issued FIN 46, Consolidation of Variable Interest Entities — an interpretation of ARB No. 51, in January 2003. FIN 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable interest. The consolidation requirements of FIN 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first fiscal

year or interim period beginning after June 15, 2003. We do not believe the adoption of such interpretation will have a material impact on our results of operations, financial position or cash flows

10. Commitments and Contingencies

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, 2003 are summarized as follows:


Commitments to extend credit	$	130,396,494
Standby letters of credit		4,917,963
Commercial letters of credit		35,928,963

In the normal course of business, we are involved in various legal claims. We have reviewed all legal claims against us with counsel and have taken into consideration the views of such counsel as to the outcome of the claims. In our opinion, the final disposition of all such claims will not have a material adverse effect on our financial position and results of operations.

11. 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 and fourth quarters of 2002, we entered into various 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

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, 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 that is deemed effective in hedging the cash flows of the designated assets are recorded in accumulated other comprehensive income (“OCI”) and reclassified into interest income when such cash flows occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss in the consolidated statement of income as a part of non-interest income. As of June 30, 2003, the amounts in accumulated OCI associated with these cash flows totaled $3,266,702 (net of tax of $2,177,800), of which $1,401,511 is expected to be reclassified into interest income within the next 12 months. As of June 30, 2003, the maximum length of time over which we are hedging our exposure to the variability of future cash flow is approximately 9.5 years.

Interest rate swap information at June 30, 2003 is summarized as follows:


	Current Notional
	Amount	Floating Rate	Fixed Rate			Maturity Date	Unrealized Gain		Realized Gain ¹

$	20,000,000	H.15 Prime ²		6.95	%	4/29/2005		875,958		14,979
	20,000,000	H.15 Prime ²		7.59	%	4/30/2007		1,611,259		43,105
	20,000,000	H.15 Prime ²		6.09	%	10/09/2007		541,476		54,745
	20,000,000	H.15 Prime ²		6.58	%	10/09/2009		595,068		80,568
	20,000,000	H.15 Prime ²		7.03	%	10/09/2012		570,665		129,831
	20,000,000	H.15 Prime ²		5.60	%	12/17/2005		440,066		32,522
	10,000,000	H.15 Prime ²		6.32	%	12/17/2007		363,063		29,804
	10,000,000	H.15 Prime ²		6.83	%	12/17/2009		466,947		42,370

$	140,000,000						$	5,464,502	$	427,924

1. Gain included in the consolidated statement of earnings for the six months ended June 30, 2003, representing hedge ineffectiveness

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

During the 2^nd quarter of 2003, interest income received from swap counterparties was $816,000 due to the interest income received from swap counterparties, compared to $168,000 for the same quarter of 2003. During the first half of 2003, interest income received from swap counterparties was $1.6 million, compared to $168,000 for the same period of 2002. At June 30, 2003, we pledged to the interest rate swap counterparty as collateral agency securities with a book value of $2.0 million and real estate loans of $2.1 million.

12. Business Segments

Our management utilizes an internal reporting system to measure the performance of our various operating segments. We have identified three principal operating segments for the purposes of management reporting: banking operation, trade finance (“TFS”), and small business administration (“SBA”). Information related to our remaining centralized functions and eliminations of intersegment amounts have been aggregated and included in banking operation. Although all three operating segments offer financial products and services, they are managed separately based on each segment’s strategic focus. The banking operation segment focuses primarily on commercial and consumer lending and deposit operations throughout our branch network. The TFS segment focuses primarily on allowing our import/export customers to handle their international transactions. Trade finance products include the issuance and collection of letters of credit, international collection, and import/export financing. The SBA segment provides our customers with the U.S. SBA guaranteed lending program.

Operating segment results are based on our internal management reporting process, which reflects assignments and allocations of capital, certain operating and administrative costs and the provision for loan losses. Noninterest income and noninterest expense, including depreciation and amortization, directly attributable to a segment are assigned to that business. We allocate indirect costs, including overhead expense, to the various segments based on several factors, including, but not limited to, full-time equivalent employees, loan volume and deposit volume. We allocate the provision for loan losses based on the origination of new loans for the period. We evaluate the overall performance based on profit or loss from operations before income taxes excluding nonrecurring gains and losses. Future changes in our management structure or reporting methodologies may result in changes to the measurement of operating segment results.

The following tables present the operating results and other key financial measures for the individual operating segments for the three and six months ended June 30, 2003 and 2002.

For the Six Months Ended June 30


	Business Segment

	Banking
	Operations		TFS		SBA		Company
2003
Net interest income, before provision for loan loss	$	16,199	$	2,173	$	2,524	$	20,896
Less provision for loan losses		1,885		285		230		2,400
Non-interest income		5,725		1,400		2,577		9,702

Net revenue		20,039		3,288		4,871		28,198
Non-interest expense		13,556		2,057		1,772		17,372

Earnings before taxes	$	6,483	$	1,231	$	3,099	$	10,826

Total assets	$	840,670	$	79,423	$	147,333	$	1,067,426

2002
Net interest income, before provision for loan loss	$	12,687	$	1,701	$	1,859	$	16,247
Less provision for loan losses		850		30		70		950
Non-interest income		5,348		1,320		1,188		7,856

Net revenue		17,185		2,991		2,977		23,153
Non-interest expense		12,420		1,706		1,147		15,273

Earnings before taxes	$	4,765	$	1,285	$	1,830	$	7,880

Total assets	$	626,729	$	65,164	$	101,806	$	793,699

For the Three Months Ended June 30


	Business Segment

	Banking
	Operations		TFS		SBA		Company
2003
Net interest income, before provision for loan loss	$	8,531	$	1,175	$	1,318	$	11,024
Less provision for loan losses		780		140		180		1,100
Non-interest income		2,992		727		1,119		4,838

Net revenue		10,743		1,762		2,257		14,762
Non-interest expense		7,124		1,217		751		9,092

Earnings before taxes	$	3,619	$	545	$	1,506	$	5,670

Total assets	$	840,670	$	79,423	$	147,333	$	1,067,426

2002
Net interest income, before provision for loan loss	$	6,854	$	912	$	1,042	$	8,808
Less provision for loan losses		520		30		50		600
Non-interest income		2,763		710		678		4,151

Net revenue		9,097		1,592		1,670		12,369
Non-interest expense		6,467		964		541		7,972

Earnings before taxes	$	2,630	$	628	$	1,129	$	4,387

Total assets	$	626,729	$	65,164	$	101,806	$	793,699

13. Other Comprehensive Income

The following table shows the reclassification of other comprehensive income as of June 30, 2003 and 2003.


			2003			2002

Unrealized gain on securities available for sale and interest-only strips:
		Unrealized holding gains arising during the period - net of tax of $136,184 in 2003 and $215,965 in 2002	$	204,276		$	323,948
	Less: Reclassification adjustment for gain included in net earnings, net of tax expense of $74,513 in 2003 and $418,043 in 2002			(111,769	)		(627,065	)

Net change in unrealized gain of securities available for sale and interest-only strips, net of tax of $61,671 in 2003 and $(202,078) in 2002			$	92,507		$	(303,117	)

Unrealized gain on interest rate swaps:
		Unrealized holding gains arising during the period - net of tax of $1,636,468 in 2003 and $224,227 in 2002	$	2,454,702		$	336,341
		Less: Reclassification adjustments to interest income - net of tax expense of $659,789 in 2003 and $67,200 in 2002		(989,683	)		(100,800	)

Net Change in unrealized gain of interest rate swaps - net of tax expense of of $976,679 in 2003 and $157,027 in 2002				1,465,019			235,541

Total change in unrealized gain of securities available for sale, interest-only strips and interest rate swaps			$	1,557,526		$	(67,576	)

14. Trust preferred

On June 5, 2003, Nara Bancorp completed a $5.0 million offering of trust preferred securities, through Nara Capital Trust III, issued as part of a private placement pooled offering with several other financial institutions. Cohen Bros. & Company acted as placement agent for the pooled offering. For the period beginning on June 5, 2003 to September 15, 2003, the trust preferred securities bear the interest rate of 4.43 percent per annum with interest payable quarterly. Beginning September 15, 2003, the interest rate is adjusted quarterly on March 15, June 15, September 15, and December 15 during the 30-year term based on the 3-month LIBOR plus 3.15 percent. However, prior to June 15, 2008, the interest rate cannot exceed 12.0 percent.

The trust preferred securities are callable at par in whole or in part beginning June 15, 2008. Nara Capital Trust III used the proceeds from the sale of the trust preferred securities to purchase junior subordinate deferrable interest debentures of Nara Bancorp.

15. Business Combination

On May 23, 2003, we announced that we signed a definitive agreement to acquire Asiana Ban, a full service commercial bank headquartered in Sunnyvale, California. Under the terms of the definitive agreement, Asiana shareholders will receive shares of Nara Bancorp common stock valued in the aggregate at approximately $8 million.

16. Subsequent Event

On August 7, 2003, Nara Bank entered into an agreement with Korea Exchange Bank of New York for the assumption by Nara Bank of approximately $51 million of Korea Exchange Bank of New York’s Broadway branch FDIC-insured deposits, as well as the acquisition of loans totaling approximately $44 million. The completion of the transaction is subject to regulatory approval and customary closing conditions, and is expected to be completed in the fourth quarter of 2003.

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 three and six month periods ended June 30, 2003 and June 30, 2002. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2002 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:


		For The Six Months Ended June 30,

		2003		2002

		(Dollars in thousands, except per share data)

Income Statement data:
	Interest income		29,048		22,365
	Interest expense		8,152		6,118

	Net interest income, before provision for loan loss		20,896		16,247
	Provision for loan losses		2,400		950

	Net interest income after provision for loan losses		18,496		15,297
	Noninterest operating income		9,702		7,856
	Noninterest operating expense		17,372		15,273

	Income before income tax		10,826		7,880
	Income tax		4,174		2,825

	Net income before cumulative effect of chagne in accounting principle		6,652		5,055

	Cumulative effect of change in accounting principle				4,192
	Net income after cumulative effect of change in accounting principle		6,652		9,247

Per Share Data:
	Earnings per share - basic	$	0.62	$	0.83
	Earnings per share - diluted		0.59		0.78
	Book value (period end)		6.77		5.59
	Common shares outstanding		10,789,052		11,031,602
	Weighted average shares - basic		10,733,404		11,135,438
	Weighted average shares - diluted		11,323,170		11,801,896
Balance Sheet Data - At Period End:
	Assets	$	1,067,441	$	793,699
	Investment Securities		146,447		97,891
	Net Loans		800,002		603,904
	Deposits		862,649		657,693


		For The Six Months Ended June 30,

		2003			2002

		(Dollars in thousands, except per share data)

Average Balance Sheet Data:
	Assets	$	1,010,974		$	719,738
	Securities		131,605			91,763
	Net Loans		748,974			535,207
	Deposits		834,922			606,962
	Shareholder’ equity		68,718			61,247
Selected Performance Ratios:
	Return on average assets, excluding cumulative effect (1)		1.32	%		1.40	%
	Return on average shareholders’ equity, excluding cumulative effect (1)		19.36	%		16.51	%
	Operating expense to average assets (1)		6.80	%		8.51	%
	Efficiency ratio (2)		56.77	%		63.36	%
	Net interest margin (3)		4.56	%		4.94	%
Capital Ratio (4)
	Leverage capital ratio		8.58	%		10.33	%
	Tier 1 risk-based capital ratio		9.89	%		11.38	%
	Total risk-based capital ratio		11.01	%		12.62	%
Asset Quality Ratios:
	Allowance for loan losses to total gross loans		1.24	%		1.12	%
	Allowance for loan losses to non-accrual loans		387.65	%		977.68	%
	Total non-performing assets to total assets		0.28	%		0.21	%

* Includes the loans held for sale

(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 net average earning assets

(4) The required ratios for the “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 asset balances

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

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 which we are subject to. 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, 2002.

RESULTS OF OPERATIONS

Net income

Our net income for the three months ended June 30, 2003 was $3.4 million or $0.30 per diluted share compared to $2.8 million or $0.24 per diluted shares for the same quarter of 2002, which represented an increase of approximately $0.6 million or 21.4%. The increase resulted primarily from an increase in net interest income. The annualized return on average assets was 1.31% for the second quarter or 2003 compared to 1.51% for the same period of 2002. The annualized return on average equity was 19.26 % for the second quarter of 2003 compared to 18.40% for the same period of 2002. The resulting efficiency ratio was 57.40% for the three months ended June 30, 2003 compared with 61.51% for the same period of 2002.

Our net income before cumulative effect of a change in accounting principle for the six months ended June 30, 2003 was $6.6 million or $0.59 per diluted share compared to $5.1 million or $0.43 per diluted share for the same quarter of 2002, which represented an increase of approximately $1.5 million or 29.4%. The increase was primarily due to an increase in net interest income and noninterest income, provided primarily by the from a growth in loans and investments as well as the sale of loans we originated, which was partially offset by higher loan loss provision and noninterest expense. During the first quarter of 2002, we recognized $4.2 million as the cumulative effect of a change in accounting principle. The cumulative effect of a change in accounting principle was 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, which resulted in total net income for the quarter of $9.2 million or $0.79 per diluted share.

The annualized return on average assets was 1.32 % for the six months ended June 30, 2003 compared to 1.40% for the same period of 2002. The annualized return on average equity was 19.36% for the six months ended June 30, 2003 compared to 16.51% for the same period of 2002. The resulting efficiency ratios were 56.82% for the six months ended June 30, 2003 compared with 63.36% for the corresponding period of the preceding year. This improvement was primarily due to the increase in net revenue. All 2002 ratios in this section exclude the cumulative effect of a change in accounting principle.

Net Interest Income and Net Interest Margin

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. The net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yield earned on interest-earning assets and rates paid on interest-bearing liabilities.

Net interest income before provision for loan losses was $11.0 million for the three months ended June 20, 2003, which represented an increase of $2.2 million, or 25.0% from net interest income of $8.8 million for the same quarter of 2002. This increase was primarily due to an increase in average earning assets, which increased $276.2 million or 40.1% to $964.4 million for the second quarter of 2003, from $688.2 million for the same quarter of 2002.

Interest income for the second quarter of 2003 was $15.1 million, which represented an increase of $3.1 million or 25.8% over interest income of $12.0 million for the same quarter of 2002. The increase was the net result of a $4.1 million increase in average interest-earning assets (volume change) off-set by a $1.0 million decrease in the yield earned on those average interest-earning assets (rate change). Interest expense for the second

quarter of 2003 was $4.1 million, which represented an increase of $0.9 million or 28.1% over interest expense of $3.2 million for the same quarter of 2002. The increase was the net result of a $1.4 million increase in average interest-bearing liabilities (volume change) offset by a $461,000 decrease in the cost of those interest-bearing liabilities (rate change).

Net interest income before provision for loan losses was $20.9 million for the six months ended June 30, 2003, which represented an increase of $4.7 million or 29.0% from net interest income of 16.2 million for the same period of 2002. The increase was the primarily due to an increase in average earning assets. Average earning assets increased $258.8 million or 39.3% to $916.8 million for the six months ended June 30, 2003, from $658.0 million for the same period of 2002.

Interest income for the six months ended June 30, 2003 was $29.0 million, which represented an increase of $6.6 million or 29.5% over interest income of $22.4 million for the same period of 2002. The increase was the net result of an $8.7 million increase in average interest-bearing liabilities (volume change) offset by $2.0 million in the cost of those interest-bearing liabilities (rate change). Interest expense for the six months ended June 30, 2003 was $8.2 million, which represented an increase of $2.1 million or 34.4% over interest expense of $6.1 million for the same period of 2002. The increase was the net result of a $3.0 million increase in average interest-bearing liabilities (volume change) off-set by a $978,000 decrease in the cost of those interest-bearing liabilities (rate change).

Net Interest Margin

The yield on average interest-earning assets decreased to 6.27% for the second quarter of 2003, from a yield of 6.95% for the same quarter of 2002. The decrease is primarily due to a 50-basis rate cut in November of 2002. The average cost of interest-bearing liabilities decreased to 2.30 % for the second quarter of 2003 from 2.70% for the same quarter of 2002. The decrease is primarily due to a decrease in market rates. The net interest margin was 4.57% for the second quarter of 2003, down from 5.12% for the same quarter of 2002. The decrease in the net interest margin was primarily due to a decrease in interest rates.

The yield on average interest-earning assets decreased to 6.16% for the six months ended June 30, 2003, from a yield of 6.80% for the six months ended June 30, 2002. The average cost of interest-bearing liabilities decreased to 2.37% for the six months ended June 30, 2003 from 2.76% for the six months ended June 30, 2002. These decrease are mainly due to decreases in market interest rates. The net interest margin was 4.43% for the six months ended June 30, 2003, down from 4.94% for the same period of 2002. The decrease in the net interest margin resulted primarily from a decrease in market interest rates.

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 the three month and six months periods indicated:


				Three months ended June 30, 2003							Three months ended June 30, 2002

						Interest		Average					Interest		Average
				Average		Income/		Yield/			Average		Income/		Yield/
				Balance		Expense		Rate			Balance		Expense		Rate

								(Dollars in thousands)
INTEREST EARNINGS ASSETS:
		Net loans, including interest rate swap		$	804,512	$	13,310		6.62	%	$	561,295	$	10,391		7.41	%
		Other investments			5,634		86		6.11	%		2,844		28		3.94	%
		Securities			135,894		1,508		4.44	%		103,313		1,460		5.65	%
		Fed funds sold			18,343		202		4.40	%		20,705		83		1.60	%

			Total interest earning assets	$	964,383	$	15,106		6.27	%	$	688,157	$	11,962		6.95	%

INTEREST BEARING LIABILITIES:
		Demand, interest-bearing		$	80,773	$	281		1.39	%	$	85,054	$	376		1.77	%
		Savings			150,420		851		2.26	%		84,604		519		2.45	%
		Time certificates of deposits			376,409		2,182		2.32	%		244,867		1,537		2.51	%
		Subordinated debentures			—		—		0.00	%		4,163		93		8.94	%
		FHLB borrowings			83,401		400		1.92	%		31,237		261		3.34	%
	Trust preferred securities				18,492		369		7.98	%		17,429		367		8.42	%

			Total interest bearing liabilities	$	709,495	$	4,083		2.30	%	$	467,354	$	3,153		2.70	%

Net interest income						$	11,023						$	8,809
Net yield on interest-earning assets									4.57	%						5.12	%
Net interest spread									3.96	%						4.25	%
Average interest-earning assets to average interest-bearing liabilities									135.93	%						147.25	%


			Six months ended June 30, 2003							Six months ended June 30, 2002

					Interest							Interest
			Average		Income/		Average			Average		Income/		Average
			Balance		Expense		Yield/ Rate			Balance		Expense		Yield/ Rate

							(Dollars in thousands)
INTEREST EARNINGS ASSETS:
	Net loans, including interest rate swap		$	748,975	$	25,611		6.84	%	$	532,748	$	19,371		7.27	%
	Other investments			5,305		135		5.09	%		2,389		43		3.60	%
	Securities			131,609		2,911		4.42	%		91,763		2,678		5.84	%
	Fed funds sold			57,369		391		1.36	%		31,146		273		1.75	%

		Total interest earning assets	$	943,258	$	29,048		6.16	%	$	658,046	$	22,365		6.80	%
INTEREST BEARING LIABILITIES:
	Demand, interest-bearing		$	80,483	$	585		1.45	%	$	85,391	$	762		1.78	%
	Savings			146,165		1,712		2.34	%		82,643		1,008		2.44	%
	Time certificates of deposits			369,533		4,313		2.33	%		236,619		3,149		2.66	%
	Subordinated debentures			—		—		0.00	%		4,231		190		0.00	%
	FHLB borrowings			74,102		819		2.21	%		20,622		380		3.69	%
	Trust preferred securities			17,849		723		8.10	%		13,826		629		9.10	%

		Total interest bearing liabilities	$	688,132	$	8,152		2.37	%	$	443,332	$	6,118		2.76	%
Net interest income					$	20,896						$	16,247
Net yield on interest-earning assets								4.43	%						4.94	%
Net interest spread								3.79	%						4.04	%

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.


				Three months ended
				June 30, 2003 over June 30, 2002

				Net			Change due to
				Increase
				(Decrease)			Rate			Volume

				(Dollars in thousands)
INTEREST INCOME
	Interest and fees on net loans and interest rate swap			$	2,927		$	(674	)	$	3,601
	Interest on other investments				58			21			37
	Interest on securities				48			(354	)		402
	Interest on fed funds sold				110			(20	)		130

			Total interest income	$	3,143		$	(1,027	)	$	4,170
INTEREST EXPENSE
	Interest on demand deposits			$	(95	)	$	(77	)	$	(18	)
	Interest on savings				332			(43	)		375
	Interest on time certificate of deposits				645			(125	)		770
	Interest on subordinated debentures				(94	)		(47	)		(47	)
	Interest on FHLB borrowings				139			(149	)		288
	Interest on trust preferred securities				2			(20	)		22

		Total interest expense		$	929		$	(461	)	$	1,390


				Six months ended
				June 30, 2003 over June 30, 2002

				Net			Change due to
				Increase
				(Decrease)			Rate			Volume

				(Dollars in thousands)
INTEREST INCOME
	Interest and fees on net loans and interest rate swap			$	6,240		$	(1,214	)	$	7,454
	Interest on other investments				92			23			69
	Interest on securities				233			(749	)		982
	Interest on fed funds sold				118			(71	)		189

			Total interest income	$	6,683		$	(2,011	)	$	8,694
INTEREST EXPENSE
	Interest on demand deposits			$	(177	)	$	(135	)	$	(42	)
	Interest on savings				704			(42	)		746
	Interest on time certificate of deposits				1,164			(426	)		1,590
	Interest on subordinated debentures				(190	)		(95	)		(95	)
	Interest on FHLB borrowings				439			(205	)		644
	Interest on trust preferred securities				94			(75	)		169

		Total interest expense		$	2,034		$	(978	)	$	3,012

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. The loan loss provision for each period is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties and regulators of the quality of the loan portfolio, the value of the underlying collateral on problem loans and the general economic conditions in our market areas. 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. Periodic fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the allowance for loan losses; however, actual loan losses may vary from current estimates.

We recorded a $1.1 million in provision for loan losses in the second quarter of 2003 compared to $600,000 in the same quarter of 2002. For the six months ended June 30, 2003, we recorded $2.4 million in provision for loan losses compared to $950,000 for the six months ended June 30, 2002. This increase reflects the results of our review and analysis of the loan portfolio and the adequacy of our existing allowance for loan losses in light of the growth experienced in our loan portfolio. We believe that the allowance is sufficient for the known and inherent losses at June 30, 2003. 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 2003 was $4.8 million compared to $4.2 million for the same quarter of 2002, which represented an increase of $0.6 million, or 16.6%, primarily as a result of increase in service charges on deposits and gain on interest rate swaps. Service charges on deposits increased $400,000 or 26.7% to $1.9 million for the second quarter of 2003, from $1.5 million for the same quarter of 2002. This increase is mainly due to the increase in average demand deposits. Average demand deposits increased $36.7 million or 17.6% to $244.7 million for the second quarter of 2003, from $208.0 million for the same quarter of 2002. We also recognized a gain of $280,000 from the valuation of interest rate swap transactions, which represented the ineffective portion of a swap that related to cash flow hedge. Gain on sale of investment securities decreased $445,000 or 94.1% to $28,000 for the second quarter of 2003, from $473,000 for the same quarter of 2002. We sold $384,000 in securities during the second quarter of 2003, compared to $15.2 million during the second quarter of 2002.

Non-interest income for the six months ended June 30, 2003 was $9.7 million compared to $7.9 million for the same period of 2002, which represented an increase of $1.8 million or 23.5%, primarily as a result of increase in service charges on deposits, gains on sale of SBA loans, and gain on interest rate swaps. Service charges on deposits increased $649,000 or 22.0% to $3.6 million for the six months ended June 30, 2003, from $3.0 million for the same period of 2002. This increase is also due to an increase in average demand deposits. Average demand deposits increased $36.5 million or 18.1% to $238.7 million for the six months ended June 30, 2003, from $202.2 million for the same period of 2002. Gain on sale of SBA loans for the first six months of 2003 was $2.0 million, increase of approximately $1.2 million or 160.8% from $781,000 for the same period of 2002. We originated $40.5 million of SBA loans and sold $28.4 million during the first six months of 2003. During the same period of 2002, we originated $21.5 million and sold $13.1 million. Gain on sale of investment securities decreased $859,000 or 92.2% during the first six months of 2003 to $186,000, from $1.0 million during the same period of 2002. We sold $3.5 million in securities during the first six months of 2003, compared to $31.1 million during the same period of 2002. We also recognized a gain of $428,000 from the interest rate swap transactions during the first six months of 2003, compared to $26,000 during the same period of 2002.

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


		Three								Three
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/2003		Amount			Percent (%)			6/30/2002

				(Dollars in thousands)
	Service charge on deposits	$	1,877	$	367			24.3	%	$	1,510
	International service fee income		696		14			2.1	%		682
	Wire transfer fees		267		21			8.5	%		246
	Service fee income - SBA		221		33			17.6	%		188
	Earnings on cash surrender value		180		55			44.0	%		125
	Gain on sale of SBA loans		837		413			97.4	%		424
	Gain on sale of securities available for sale		28		(445	)		-94.1	%		473
	Gain on interest rate swaps		280		254			100.0	%		26
	Gain on sale of OREO		80		43			100.0	%		37
	Other		373		(67	)		-15.2	%		440

Total noninterest income		$	4,839	$	688			16.6	%	$	4,151


		Six								Six
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/2003		Amount			Percent (%)			6/30/2002

				(Dollars in thousands)
	Service charge on deposits	$	3,601	$	649			22.0	%	$	2,952
	International service fee income		1,339		69			5.4	%		1,270
	Wire transfer fees		514		30			6.2	%		484
	Service fee income - SBA		421		107			34.1	%		314
	Earnings on cash surrender value		361		134			59.0	%		227
	Gain on sale of SBA loans		2,037		1,256			160.8	%		781
	Gain on sale of securities available for sale		186		(859	)		-82.2	%		1,045
	Gain on interest rate swaps		428		402			1546.2	%		26
	Gain on sale of OREO		78		41			110.8	%		37
	Other		737		17			2.4	%		720

Total noninterest income		$	9,702	$	1,846			23.5	%	$	7,856

Non-interest Expense

Non-interest expense for the second quarter of 2003 was $9.1 million compared to $8.0 million for the same quarter of 2002, which represented an increase of $1.1 million or 14.0%, primarily due to increase in salaries and employee benefit expenses and data processing expenses. Salaries and employee benefits expenses for the second quarter of 2003, increased $1.1 million or 26.4% to $5.2 million from $4.2 million for the same quarter of 2002. This increase is primarily due to the hiring of additional staffs to support our growth, the salary adjustments, and significant increase in health insurance premium. Data and Item processing expenses for the second quarter of 2003 increased $164,000 or 44.4% to $540,000 from $374,000 for the same quarter of 2002. This increase is primarily due to an increase in number of accounts from the acquisition of deposits from Industrial Bank of Korea, New York, as well as and internal growth.

Non-interest expense for the six months ended June 30, 2003 was $17.4 million, compared to $15.3 million for the same period of 2003, which represented an increase of $2.1 million or 13.7%, primarily due to an increase in salaries and employee benefit expenses and data processing expenses. Salaries and employee benefits expenses for the six months ended June 30, 2003 increased $1.6 million or 19.3% to $9.8 million from $ 8.2 million for the same period of 2002. This increase is primarily due to the hiring of additional staffs to support the new branches and the internal growth, the salary adjustments, and the increase in other benefits such as health insurance premium. Data and item processing expenses for six months ended June 30, 2003 increased $225,000 or 28.8% to $1 million from $781,000 for the same period of 2002. This increase is primarily due to an increase in number of accounts from the acquisition of deposits from Industrial Bank of Korea, New York in December of 2002, and internal growth.

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


		Three								Three
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/2003		Amount			Percent (%)			6/30/2002

	Salaries and benefits	$	5,248	$	1,095			26.4	%	$	4,153
	Net occupancy		1,058		17			1.6	%		1,041
	Furniture and equipment		363		(20	)		-5.2	%		383
	Advertising and marketing		324		(60	)		-15.6	%		384
	Regulatory fees		171		40			30.5	%		131
	Communications		150		21			16.3	%		129
	Data and item processing		540		166			44.4	%		374
	Professional fees		457		(33	)		-6.7	%		490
	Office supplies & Forms		95		(16	)		-14.4	%		111
	Directors’ Fees		107		—			0.0	%		107
	Credit related expenses		167		(83	)		-33.2	%		250
	Amortization of intangibles		75		43			134.4	%		32
	Other		337		(50	)		-12.9	%		387

Total non-interest expense		$	9,092	$	1,120			14.0	%	$	7,972


		Six								Six
		Months								Months
		Ended		Increase (Decrease)						Ended

		6/30/2003		Amount			Percent (%)			6/30/2002

	Salaries and benefits	$	9,809	$	1,586			19.3	%	$	8,223
	Net occupancy		2,110		57			2.8	%		2,053
	Furniture and equipment		739		(22	)		-2.9	%		761
	Advertising and marketing		659		61			10.2	%		598
	Regulatory fees		341		73			27.2	%		268
	Communications		299		—			0.0	%		299
	Data and item processing		1,006		225			28.8	%		781
	Professional fees		910		118			14.9	%		792
	Office supplies & Forms		178		7			4.1	%		171
	Directors’ Fees		222		22			11.0	%		200
	Credit related expenses		282		(144	)		-33.8	%		426
	Amortization of intangibles		148		85			134.9	%		63
	Other		669		31			4.9	%		638

Total non-interest expense		$	17,372	$	2,099			13.7	%	$	15,273

Provision for Income Taxes

The provision for income taxes was $2.3 million and $1.5 million on income before taxes of $5.7 million and $4.4 million for the three months ended June 30, 2003 and 2002, respectively. The effective tax rate for the quarter ended June 30, 2003 was 39.9 %, compared with 35.8% for the quarter ended June 30, 2002.

The provision for income taxes was $4.2 million and $2.8 million on income before taxes and cumulative effect of a change in accounting principle of $10.8 million and $7.9 million for the six months ended June 30, 2003 and 2002, respectively. The effective tax rate for the six months ended June 30, 2003 was 38.9%, compared with 35.8% for the six months ended June 30, 2002. The lower tax rate in 2002 was primarily due to a permanent differences recognized from loan recoveries relating to the charged-off loans of Korea First Bank of New York prior to the acquisition and also due to an one time tax benefit resulted from a California State tax law change in which one-half of the cumulative loan losses through December 31, 2002 taken for income tax purposes were forgiven.

Financial Condition

At June 30, 2003, our total assets were $1,067.4 million, an increase of $88.2 million or 9.0%, from $979.2 million at December 31, 2002. The growth resulted primarily from increases in our loans as a result of a continuing strong demand for loans in our market and investment securities, funded by growth in deposits and other borrowings.

Investment Securities 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 did not own any trading securities at June 30, 2003. 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, 2003, we had $2.8 million of held-to-maturity securities and $143.6 million of available-for-sale securities, compared to $2.8 million and $101.6 million at December 31, 2002, respectively. The total net unrealized gain on the available-for sale securities at June 30, 2003 was $1.3 million, compared to net unrealized gain of $1.1 million at December 31, 2002. During the first six months of 2003, we purchased a total of $69.8 million in available-for-sale securities, sold $3.5 million and $16.6 million in available-for-sale securities were called. We recognized total gross gains of $186,000 during the first six month of 2003 from the sale of securities available for sale.

Securities with an amortized cost of $13.7 million were pledged to Federal Reserve Bank to secure public deposits and for other purposes as required or permitted by law at June 30, 2003. Securities with an amortized cost of $48.0 million and $52.0 million were pledged to FHLB of San Francisco and State of California Treasurer’s Office, respectively, at June 30, 2003.

The following table summarizes the book value, market value and distribution of our investment securities portfolio as of dates indicated:

Investment Portfolio


			At June 30, 2003							At December 31, 2002

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

			(Dollars in thousands)
Held to maturity:
	U.S. Corporate notes		$	2,808	$	3,048	$	240		$	2,780	$	2,927	$	147

		Total held-to-maturity	$	2,808	$	3,048	$	240		$	2,780	$	2,927	$	147
Available-for-sale:
	U.S. Government		$	21,790	$	22,273	$	483		$	34,546	$	35,157	$	611
	CMO’s			34,317		34,390		73			6,227		6,324		97
	MBS			34,495		34,814		319			16,151		16,343		192
	Asset Backed			—		—		—			88		88		—
	Municipal Bonds			35,779		37,821		2,042			27,133		27,502		369
	U.S. Corporate notes			5,189		5,135		(54	)		5,588		5,400		(188	)
	U.S. Agency Preferred Stock			10,807		9,206		(1,601	)		10,808		10,808		53

		Total available-for-sale	$	142,377	$	143,639	$	1,262		$	100,488	$	101,622	$	1,134
Total investment portfolio			$	145,185	$	146,687	$	1,502		$	103,268	$	104,549	$	1,281

The carrying value and the yield of investment securities as of June 30, 2003, 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.

Investment Maturities and Repricing Schedule


			After One But					After Five But
			Within Five Years					Within Ten Years					After Ten Years					Total

			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield

Held to maturity:
	U.S. Corporate notes		$	2,002		7.01	%	$	—		—		$	806		7.41	%	$	2,808		7.12	%
		Total held-to-maturity	$	2,002		7.01	%	$	—		—		$	806		7.41	%	$	2,808		7.12	%
Available-for-sale:
	U.S. Government		$	9,233		4.01	%	$	13,040		4.36	%	$	—		0.00	%	$	22,273		4.21	%
	CMO’s			—		—			—		—			34,390		3.97	%		34,390		3.97	%
	MBS			3,889		2.92	%		709		3.41	%		30,216		3.99	%		34,814		3.86	%
	Municipal Bonds			—		—			441		3.70	%		37,380		4.87	%		37,821		4.86	%
	U.S. Corporate notes			1,052		7.02	%		—		—			4,083		8.67	%		5,135		8.33	%
	U.S. Agency Preferred Stock			—		—			—		—			9,206		3.93	%		9,206		3.93	%
	Total available-for-sale		$	14,174		3.93	%		14,190		4.29	%	$	115,275		4.43	%	$	143,639		4.37	%
Total investment portfolio			$	16,176		4.32	%		14,190		4.29	%	$	116,081		4.45	%	$	146,447		4.42	%

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 loan losses. SBA loans held-for-sale are carried at the lower of cost or market. Interest on all loans is accrued daily. 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 30,2003, our gross loans (net of unearned fees), including loans held for sale, increased by $80.3 million or 11.0% to $810.1 million from $ 729.8 million at December 31, 2002. At June 30, 2003, the commercial loans, which include domestic commercial, international trade finance, SBA loans, and equipment leasing, increased by $30.4 million or 10.2 % to $329.3 million from $298.9 million at December 31, 2002. Real estate and construction loans increased by $46.2 million or 12.3% to $421.9 million from $375.7 million at December 31, 2002. There has been a continued high demand for real estate loans during the past months; however, we continue to monitor and maintain well-balanced loan portfolio.

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, 2003						December 31, 2002

				Amount			Percent			Amount			Percent

				(Dollars in thousands)
Loan Portfolio Composition:
	Commercial loans *			$	329,338			40.6	%	$	298,949			40.9	%
	Real estate and construction loans				421,940			52.0	%		375,743			51.4	%
	Consumer and other loans				60,313			7.4	%		56,449			7.7	%

			Total loans outstanding		811,591			100.0	%		731,141			100.0	%
		Unamortized loan fees, net of costs			(1,541	)					(1,326	)
		Less: Allowance for loan losses			(10,048	)					(8,458	)

Net Loans Receivable					800,002						721,357

* Includes loans held for sale of $7,235 at June 30, 2003 and $6,338 at December 31, 2002

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, 2003		December 31, 2002

Loan commitments	$	130,396	$	114,734
Standby letters of credit		4,918		4,830
Commercial letters of credit		35,929		26,952

At June 30, 2003, our nonperforming assets (nonaccrual loans, loans 90 days or more past due and still accruing interest, restructured loans, and other real estate owned) were $3.0 million, which represented an increase of $900,000 or 40.9% from $2.2 million at December 31, 2002. As of June 30, 2003, the restructured loans totaled $423,000 loans and are current. At June 30, 2003, nonperforming assets to total assets was 0.28%, compared to 0.22% at December 31, 2002. The nonperforming loans were $2.6 million, which represented an increase of approximately $1.5 million or 136.4% from $1.1 million at December 31, 2002. The increase was mainly due to two loans in amounts of $1.0 million and $300,000, respectively, which are fully secured by real estate properties. At June 30, 2003, nonperforming loans to total gross loans was 0.32%, compared to 0.15% at December 31, 2002.

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


		June 30, 2003			December 31, 2002

		(Dollars in thousands)
Nonaccrual loans		$	2,592		$	1,064
Loan past due 90 days or more, still accruing			—			18

	Total Nonperforming Loans		2,592			1,082
Other real estate owned			—			36
Restructured loans			423			1,067

	Total Nonperforming Assets	$	3,015		$	2,185
	Nonperforming loans to total gross loans		0.32	%		0.15	%
	Nonperforming assets to total assets		0.28	%		0.22	%

Allowance for Loan Losses

We maintain an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on our regular, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which include the formula allowance and specific allowances for identified problem loans.

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.

Central to the migration analysis 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 the market value of collateral, and our lien position; and the financial strength of guarantors

To calculate our various loan factors, 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. We have established a minimum risk factor for each loan grade Pass (0.40% - 1.00%), Special Mention (3.0%), Substandard (10.0% - 15.0%), Doubtful (50.0%), and Loss (100.0%).

Our parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. 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.

• 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.

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.

Executive management reviews these conditions quarterly in discussion with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such conditions may be reflected as a specific allowance, applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss related to such condition is reflected in the unallocated allowance.

The allowance for loan losses was $10.0 million at June 30, 2003, compared to $6.8 million at June 30, 2002. We recorded a provision of $2.4 million during the six months ended June 30, 2003, mainly due to an increase in our loan portfolio and classified loans. Average gross loans (net of unearned) increased $216.3 million or 39.9% to $758.3 million for the six months ended June 30, 2003, compared to $542.0 million for the same period of 2002. During the first six months of 2003, we charged off $1.0 million and recovered $192,000. The allowance for loan losses was 1.24% of gross loans at June 30, 2003, compared to 1.12% at June 30, 2002. The total classified loans at June 30, 2003 were $5.8 million, compared to $1.7 million at June 30, 2002.

We believe the level of allowance as of June 30, 2003 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 ended
			June 30, 2003			June 30, 2002

			(Dollars in thousands)
LOANS:
Average gross loans			$	758,275		$	542,020
Total gross loans at end of period				810,050			610,738
ALLOWANCE:
Balance-beginning of period				8,458			6,710
Less: Loan Charged off:
	Commercial			674			1,389
	Consumer			317			109
	Real Estate and Construction			11			—

		Total loans charged off		1,002			1,498
Plus: Loan Recoveries
	Commercial			175			634
	Consumer			9			30
	Real Estate and Construction			8			8

		Total loan recoveries		192			672
	Net loans charged off			810			826
	Provision for loan losses			2,400			950
	Balance-end of period		$	10,048		$	6,834

Net loan charge-offs to average total lonas				0.11	%		0.15	%
Net loan charge-offs to total loans at end of period				0.10	%		0.14	%
Allowance for loan losses to average total loans				1.33	%		1.26	%
Allowance for loan losses to total loans at end of period				1.24	%		1.12	%
Net loan charge-offs to beginning allowance *				9.58	%		12.31	%
Net loan charge-offs to provision for loan losses *				33.75	%		86.95	%

* Total loans are net of unearned

Deposits and Other Borrowings

Deposits are our primary source of funds to use in lending and investment activities. At June 30, 2003, our deposits increased by $45.7 million or 5.6% to $862.6 million from $816.9 million at December 31, 2002. Demand deposits totaled $263.3 million, which represented an increase of $26.4 million or 11.1% from $236.9 million at December 31, 2002. Time deposits over $100,000 totaled $277.5 million, which represented an increase of $9.3 million or 3.5% from $268.2 million at December 31, 2002. Other interest-bearing demand deposits, including money market and super now accounts, totaled $79.4 million, which represented a decrease of $4.0 million or 4.8% from $83.9 million at December 31, 2002.

At June 30, 2003, 30.5% of the total deposits were non-interest bearing demand deposits, 42.3% were time deposits, 18.0% were savings accounts, and 9.2% were interest bearing demand deposits. By comparison, at December 31, 2002, 29.0% of the total deposits were non-interest bearing demand deposits, 43.4% were time deposits, 17.3% were savings accounts, and 10.3% were interest bearing demand deposits.

At June 30, 2003, we had a total of $17.0 million in time deposits brought in through brokers and $40.0 million in time deposits from the State of California Treasurer’s Office. The deposits from the Sate of California Treasurer’s Office were collateralized with our securities with an amortized cost of $52.0 million. The detail of those deposits is shown on the table below.


Brokered
Deposits	Issue Date	Maturity Date	Rate

$10,090,000	07/31/02	07/31/03		2.35	%
4,788,000	11/06/02	08/06/03		2.10	%
2,090,000	02/16/01	02/16/06		5.65	%

$16,968,000				2.69	%


State Deposits		Issue Date	Maturity Date	Rate

$	10,000,000	02/07/03	08/08/03		1.23	%
	5,000,000	12/16/02	09/11/03		1.16	%
	5,000,000	03/11/03	09/11/03		1.16	%
	20,000,000	04/23/03	10/23/03		1.25	%

$	40,000,000				1.22	%

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, 2003. All FHLB advances were fixed rates.


FHLB Advances		Issue Date	Maturity Date	Rate

$	15,000,000	07/19/02	07/21/03		2.03	%
	5,000,000	09/23/02	09/23/03		1.76	%
	10,000,000	09/30/02	09/30/03		1.58	%
	5,000,000	02/04/02	02/04/04		3.39	%
	35,000,000	03/07/03	03/08/04		1.18	%
	5,000,000	04/26/02	03/31/04		3.53	%
	5,000,000	05/05/03	03/31/05		1.72	%
	5,000,000	10/19/00	10/19/07		6.70	%

$	85,000,000				2.04	%

Nara Bancorp established special purpose trusts in 2001, 2002, and 2003 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 Subordinated 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 Subordinated 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, 2003.

(Dollars in Thousand)

TRUST SECURITIES AND JUNIOR

TRUST SECURITIES

SUBORDINATED DEBENTURES

PRINCIPAL

ANNUALIZED

INTEREST

TRUST

ISSUANCE

BALANCE OF

STATED

COUPON

DISTRIBUTION

NAME

DATE

AMOUNT

DEBENTURES

MATURITY

RATE

DATES

Nara Bancorp

March

Capital Trust I

2001

$10,000

$10,400

6/8/2031

10.18%

June 8 and December 8

March 26, June 26

Nara Statutory

March

3 Month

September 26 and

Trust II

2002

$ 8,000

$ 8,248

3/26/2032

LIBOR + 3.60%

December 26

March 15, June 15

Nara Capital

June

3 Month

September 15 and

Trust III

2003

$ 5,000

$ 5,063

6/15/2033

LIBOR + 3.15%

December 15

The Junior Subordinate Debentures are not redeemable prior to June 8, 2011 with respect to Nara Bancorp Capital Trust I, March 26, 2007 with respect to Nara Statutory Trust II and June 15, 2008 with respect to Nara Capital Trust III unless certain events have occurred. The proceeds from the issuance of the Trust Securities were used primarily for corporate purposes.

The following table shows our contractual obligation as of June 30, 2003.


	Payments due by period

			Less than 1
Contractual Obligations	Total		year		1-3 years		3-5 years		Over 5 years

Trust Preferred Securities	$	22,298,336	$	—	$	—	$	—	$	22,298,336
Federal Home Loan Bank borrowings		85,000,000		75,000,000		5,000,000		5,000,000		—
Operating Lease Obligations		35,365,750		3,483,540		7,419,034		6,367,343		18,095,833
Total	$	142,664,086	$	78,483,540	$	12,419,034	$	11,367,343	$	40,394,169

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 $73.1 million at June 30, 2003. This represented an increase of $7.7 million or 11.8% over total stockholders’ equity of $65.4 million at December 31, 2002.

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, 2003, Tier 1 capital, stockholders’ equity less intangible assets, plus proceeds from the Trust Securities, was $89.0 million. This represented an increase of $11.2 million or 14.4% over total Tier 1 capital of $77.9 million at December 31, 2002. This increase was due to an issuance of $4.7 million trust preferred during the second quarter and a net income of $6.6 million off-set by cash dividends of $1.1 million, of which $537,000 and $540,000 were paid in April and July of 2003, respectively. At June 30, 2003, we had a ratio of total capital to total risk-weighted assets of 11.0% and a ratio of Tier 1 capital to total risk weighted assets of 9.9%. The Tier 1 leverage ratio was 8.6% at June 30, 2003.

As of June 30, 2003, Management believed that the Bank has continued to meet the criteria as a “well capitalized institution” under the regulating framework for prompt corrective action. 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, 2003 and December 31, 2002.


	As of June 30, 2003

	Actual					Required					Excess

(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio

Leverage ratio	$	89,035		8.6	%	$	41,519		4.0	%	$	47,516		4.6	%
Tier 1 risk-based capital ratio		89,035		9.9	%		35,995		4.0	%		53,040		5.9	%
Total risk-based capital ratio		99,083		11.0	%		71,990		8.0	%		27,093		3.0	%


	As of December 31, 2002

	Actual					Required					Excess

	Amount		Ratio			Amount		Ratio			Amount		Ratio

Leverage ratio	$	77,863		8.7	%	$	35,707		4.0	%	$	42,156		4.7	%
Tier 1 risk-based capital ratio		77,863		9.6	%		32,293		4.0	%		45,570		5.6	%
Total risk-based capital ratio		86,321		10.7	%		64,585		8.0	%		21,736		2.7	%

Liquidity Management

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, 2003, our borrowing capacity included $30.0 million in federal funds line facility from correspondent banks and $34.0 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 $90.0 million at June 30, 2003, compared to $138.1 million at December 31, 2002. We believe our liquidity sources to be stable and adequate.

Because our primary sources and uses of funds are loans and deposits, the relationship between gross loans and total deposits provides a useful measure of our liquidity. Typically, higher the ratio of loans to deposits is to 100%, the more we rely on our loan portfolio to provide for short-term liquidity needs. Because repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan to deposit ratio, the less liquid are our assets. At June 30, 2003, our gross loan to deposit ratio was 94.0%.

Item 3. Quantitative and qualitative disclosures about market risk

The objective of our asset and liability management activities is to improve our earnings by adjusting the type and mix of assets and liabilities to effectively address changing condition and risks. Through overall management of our balance sheet and by controlling various risks, we seek to optimize our financial returns within safe and sound parameters. Our operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of asset and liabilities and emphasizing growth in retail deposits, as a percentage of interest-bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling noninterest expense, and enhancing noninterest income. We also use risk management instruments to modify interest rate characteristic of certain assets and liabilities to hedge against our exposure to interest rate fluctuations, reducing the effects these fluctuations might have on associated cash flows or values. Finally, we perform internal analyses to measure, evaluate and monitor risk.

Interest Rate Risk

Interest rate risk is the most significant market risk impacting us. 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 instrument. Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volume. A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows and values and market interest rate movements. The management of interest risk is governed by policies reviewed and approved annually by the Board of Directors. Our Board delegates responsibility for interest risk management to the Asset and Liability Management Committee of Nara Bank (“ALCO”), which is composed of Nara Bank’s senior executives and other designated officers.

The fundamental objective of the ALCO is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The ALCO meets regularly to monitor the interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, investment activities and directs changes in the composition of the balance sheet. Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective

maturities or repricing characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Further, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while rate on other types may lag behind. We consider the anticipated effects of these factors when implementing our interest rate risk management objectives.

Swaps

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. Interest rate swaps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts. During 2002, we entered into eight different interest rate swap agreements as summarized in the table below.

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 that is deemed effective in hedging the cash flows of the designated assets are recorded in accumulated other comprehensive income (“OCI”) and reclassified into interest income when such cash flows occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss in the consolidated statement of income as a part of non-interest income. As of June 30, 2003, the amounts in accumulated OCI associated with these cash flows totaled $3,266,702 (net of tax of $2,177,800), of which $1,401,511 is expected to be reclassified into interest income within the next 12 months.

Interest rate swaps information at June 30, 2003 is summarized as follows:


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

$	20,000,000	H.15 Prime ²		6.95	%	4/29/2005	$	875,958	$	14,979
	20,000,000	H.15 Prime ²		7.59	%	4/30/2007		1,611,259		43,105
	20,000,000	H.15 Prime ²		6.09	%	10/09/2007		541,476		54,745
	20,000,000	H.15 Prime ²		6.58	%	10/09/2009		595,068		80,568
	20,000,000	H.15 Prime ²		7.03	%	10/09/2012		570,665		129,831
	20,000,000	H.15 Prime ²		5.60	%	12/17/2005		440,066		32,522
	10,000,000	H.15 Prime ²		6.32	%	12/17/2007		363,063		29,804
	10,000,000	H.15 Prime ²		6.83	%	12/17/2009		446,947		42,370

$	140,000,000						$	5,444,502	$	427,924

1. Gain included in the consolidated statement of earnings for the six months ended June 30, 2003, representing hedge ineffectiveness

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

During the second quarter of 2003, interest income received from swap counterparties was $816,000 , compared to $168,000 for the same quarter of 2002. During the first half of 2003, interest income received from swap counterparties was $1.6 million , compared to $168,000 for the first half of 2002. At June 30, 2003, we pledged to the interest rate swap counterparty as collateral agency securities with a book value of $2.0 million and real estate loans of $2.1 million.

Interest Rate Sensitivity

Our monitoring activities related to managing interest rate risk include both interest rate sensitivity “gap” analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the balance sheet, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with the use of a simulation model, which provides a dynamic assessment of interest rate sensitivity.

The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated to reprice within a specific time period and the amount of interest-bearing liabilities anticipated to reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets repricing within a specific time period exceeds the amount of interest-bearing liabilities repricing within that same time period. Positive cumulative gaps suggest that earnings will increase when interest rates rise. Negative cumulative gap suggest that earnings will increase when interest rates fall.

The following table shows our gap position as of June 30, 2003


			0-90 days			91-365 days			1-5 years		Over 5 yrs		Total

			(Dollars in thousands)
		Total Investments		47,866			28,206			37,127		71,481		184,680
		Total Loans		696,024			17,355			61,952		36,260		811,591

Rate Sensitive Assets				743,890			45,561			99,079		107,741		996,271

Deposits
TCD, $100M +				129,804			144,086			3,598		—		277,488
	TCD, less than 100M			39,510			46,292			1,024		17		86,843
	MMDA			69,919			—			—		—		69,919
	NOW			9,466			—			—		—		9,466
	Savings			127,200			13,503			12,178		2,796		155,677
Other liabilities				—			—			—
	FHLB Borrowing			30,000			45,000			10,000		—		85,000
	Trust Preferred			—			—			—		22,298		22,298

Rate Sensitive Liabilities				405,899			248,881			26,800		25,111		706,691

Interest Rate Swap				(140,000	)		—			90,000		50,000		—
Periodic GAP				197,991			(203,320	)		162,279		132,630		289,580
Cumulative GAP				197,991			(5,329	)		156,950		289,580

The simulation model discussed above also provides our ALCO with the ability to simulate our net interest income. In order to measure, at June 30, 2003, the sensitivity of our forecasted net interest income to changing interest rates, both a rising and falling interest scenario were projected and compared to a base market interest rate forecasts. One application of our simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our market value of equity. This analysis assesses the changes in market

values of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase in market interest rates.

At June 30, 2003, our net interest income and market value of equity expose related to these hypothetical changes in market interest rates are illustrated in the following table.


	Estimated
	Net
	Interest			Market Value
Simulated	Income			Of Equity
Rate Changes	Sensitivity			Volatility

+200 basis points		9.44	%		(20.73	)%
+100 basis points		5.82	%		(10.51	)%
-100 basis points		(3.37	)%		7.20	%

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are sufficiently effective to ensure that the information we are required to be disclosed in the reports we file under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted within 90 days prior to the date thereof.

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above.

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) None.

Item 3. Defaults upon Senior Securities

None

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

None

Item 5. Other information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference (as stated herein) as part of this Quarterly Report on Form 10-Q.

(b) Reports on Form 8-K

During the quarter ended June 30, 2003, Nara Bancorp filed the following Current Reports on Form 8-K: (1) April 24, 2003 (containing a press release announcing preliminary results for its first quarter ended March 31, 2003); (2) April 29, 2003 (containing a press release announcing the signing of a non-binding letter of agreement for the acquisition of Asiana Bank and the selection of a new President and CEO of Nara Bank, N.A. a wholly owned subsidiary of Nara Bancorp); (3) May 29, 2003 (containing a press release with a copy of a slide show presented at its annual meeting of stockholders on May 28, 2003); and (4) June 10, 2003 (containing a press release announcing the receipt of $4.9 million from its participation in a pooled trust preferred offering).

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 13, 2003		/s/ Benjamin Hong
		Benjamin Hong
		President and Chief Executive Officer
		(Principal executive officer)

Date: August 13, 2003		/s/ Timothy Chang
		Timothy Chang
		Chief Financial Officer
		(Principal financial officer)

CERTIFICATION

I, Benjamin Hong, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nara Bancorp, Inc. (“the Company”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and or, the period presented in this quarterly report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13A-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting


Dated: August 13, 2003		/s/ Benjamin Hong

		Benjamin Hong President and Chief Executive Officer

CERTIFICATION

I, Timothy Chang, certify that:


Date: August 13, 2003		/s/ Timothy Chang

		Timothy Chang Senior Vice President and Chief Financial Officer

INDEX TO EXHIBITS


Number		Description of Document

	3.1	Certificate of Incorporation of Nara Bancorp, Inc. ¹

	3.2	Bylaws of Nara Bancorp, Inc. ¹

	3.3	Amended Bylaws of Nara Bancorp, Inc. ³

	4.1	Form of Stock Certificate of Nara Bancorp, Inc. ²

	4.12	Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt and preferred securities are not filed. The Company agrees to furnish a copy thereof to the Securities Exchange Commission upon request.

	10.17	Agreement to acquire Asiana Bank, Sunnyvale, California*

	10.18	Lease for premise located at 16 West 32nd Street, New York, NY *

	32	Certification of CEO and CFO pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 *

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 December 5, 2000.

3.		Incorporated by reference to Exhibits filed with our Statement on Form 10-Q filed with the Commission on August 14, 2002.

* Filed herein

1.		Gain included in the consolidated statement of earnings for the six months ended June 30, 2003, representing hedge ineffectiveness

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

(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 net average earning assets

(4)		The required ratios for the “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 asset balances

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

	•		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.

	1.		I have reviewed this quarterly report on Form 10-Q of Nara Bancorp, Inc. (“the Company”);

	2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and or, the period presented in this quarterly report;

	4.		The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13A-14 and 15d-14) for the registrant and we have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and

	c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

	5.		The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting