UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

OR

For the transition period from                                          to                                         

     Commission file number 0-24947

UCBH Holdings, Inc.

(415) 315-2800

711 Van Ness Avenue, San Francisco, California 94102

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   [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date.

As of August 6, 2004, the Registrant had 45,265,116 shares of common stock outstanding.

UCBH HOLDINGS, INC.
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Thousands)

The accompanying notes are an integral part of these financial statements.

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UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except for Per Share Data)

The accompanying notes are an integral part of these financial statements.

Page 2

UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)

The accompanying notes are an integral part of these financial statements.

Page 3

UCBH HOLDINGS, INC.

1.

Basis of Presentation and Summary of Significant Accounting and Reporting Policies

     Organization

     UCBH Holdings, Inc. (the “Company” or “UCBH”) is a bank holding company organized under the laws of Delaware that conducts its business through its principal subsidiary, United Commercial Bank (the “Bank” or “UCB”), a California state-chartered commercial bank. The Bank offers a full range of commercial and consumer banking products domestically through its retail branches and other banking offices in California and New York, and internationally through its full-service branch in Hong Kong, which was opened during the second half of 2003 under a license granted by the Hong Kong Monetary Authority. During the first quarter of 2004, the Company’s wholly owned subsidiary UCB Investment Services (“UCBIS”) commenced business. UCBIS is a registered broker-dealer with the Securities and Exchange Commission and a member of the National Association of Securities Dealers (“NASD”) and the Securities Investor Protection Corporation (“SIPC”).

     Basis of Presentation and Principles of Consolidation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and include all normal recurring adjustments which the Company considers necessary for a fair presentation of the financial statements of such periods. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The unaudited consolidated financial statements include the accounts of the Company and most of its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The wholly owned subsidiaries not included in the consolidated results are certain special purpose trusts established for the purpose of issuing Guaranteed Preferred Beneficial Interests in the Company’s Junior Subordinated Debentures. These trusts are excluded pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”), issued by the FASB in December of 2003, as the Company is not deemed to be the primary beneficiary. The Company also invests in affordable housing and small business corporations, limited liability companies, and limited partnerships as a result of Community Reinvestment Act (“CRA”) requirements. Such investments are generally accounted for under the equity or cost method pursuant to Accounting Principles Board Opinion Number 18, “The Equity Method of Accounting for Investments in Common Stock.” None of these investments meet the requirements of FIN 46R, and therefore, are not consolidated.

     Operating results for the three and six months ended June 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

     Please refer to the audited consolidated financial statements and related notes thereto included in the Company’s Form 10-K for the year ended December 31, 2003, for additional details of the Company’s financial position, as well as for a description of the Company’s significant accounting policies, which have been continued without material change. The details included in the notes have not changed except as a result of normal transactions in the interim period and the events mentioned in the notes below.

     Use of Estimates in Preparation of Financial Statements

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results.

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     Reclassification

     Certain prior period amounts have been reclassified to conform to the current period’s presentation.

2.

Recent Accounting Pronouncements

     Accounting for Stock-Based Compensation

     In December 2002, the FASB issued Statements of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which provides guidance on alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provision of that statement to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting,” to require disclosure about those effects in interim financial information.

     The Company has elected to continue accounting for stock-based compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, no stock-based employee compensation cost is reflected in the statement of operations, as all options granted have an exercise price equal to the market value of the underlying common stock on the date of grant.

     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

     If the computed fair values of the stock awards had been amortized to expense over the vesting period of the awards, pro forma amounts would have been as shown in the above table.

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     These calculations require the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. These models as required by current accounting pronouncements also require subjective assumptions, including future stock price volatility, dividend yield, and expected time to exercise, which greatly affect the calculated values. The following weighted average assumptions were used in the Black-Scholes option pricing model for options granted during the three and six months ended June 30, 2004, and 2003:

     Consolidation of Variable Interest Entities

     In January 2003, the FASB issued FASB Interpretation No. 46, (“FIN 46”) “Consolidation of Variable Interest Entities.” This interpretation applies immediately to variable interest entities (“VIE”) in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to any VIE in which an enterprise holds a variable interest that is acquired before February 1, 2003. Previously issued accounting pronouncements require the consolidation of one entity in the financial statements of another if the second entity has a controlling interest in the first. In effect, FIN 46 applies broader criteria than just voting rights in determining whether one entity has a controlling financial interest in another. Specifically, if by design the owners of the entity have not made an equity investment sufficient to absorb its expected losses and the owners lack any one of three essential characteristics of controlling financial interest, the entity is to be consolidated in the financial statements of its primary beneficiary. The three characteristics are: (1) the ability to make decisions about the entity’s activities, (2) the obligation to absorb the expected losses of the entity, and (3) the right to receive the expected residual returns of the entity.

     At December 31, 2003, the Company adopted FIN 46R. As discussed in Note 1, the FASB issued Fin 46R to clarify the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and finalizes this statement for public entities. Under FIN 46R, a VIE is defined as an entity subject to consolidation based on criteria specified in FIN 46R.

     In 1998, 2001 and 2002, the Company created certain special purpose trusts for the purpose of issuing capital securities. Through the third quarter of 2003, these trusts were consolidated into the financial results of the Company. Under FIN 46R, the trusts are no longer consolidated as the trusts are deemed VIEs and the Company is not the primary beneficiary. Consequently, the trusts have been deconsolidated from the financial results of the Company effective December 31, 2003 with consistent presentation for periods presented.

     The impact of this deconsolidation on the Company’s financial condition and operating results was immaterial, resulting primarily in classification changes on the Balance Sheet. A potential outcome arising as a result of FIN 46R is that the Federal Reserve Bank may no longer allow the capital securities issued by the trusts to be included in Tier I capital of the Company. The Federal Reserve has issued proposed rules that these securities will be grandfathered and continues to be included in the Company’s Tier I capital. If regulatory requirements required exclusion of these securities from Tier I capital, the Company would be well capitalized at June 30, 2004. The Bank’s Tier I capital would be unaffected as the trusts and their securities have been issued at the holding company level.

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     Derivative Instruments and Hedging Activities

     In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). The provisions of SFAS No. 149 that relate to SFAS No. 133 and No. 138 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. SFAS No. 133 and No. 138 clarify when a derivative contains a financing component, amend the definition of an underlying derivative instrument to conform it to language used in FIN 45, and amend certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. In addition, provisions of SFAS No. 149 which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The changes in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for in the same manner. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated above and for hedging relationships designated after June 30, 2003. In addition, except as stated above, all provisions of SFAS No. 149 should be applied prospectively.

     The Company adopted SFAS No. 149 on July 1, 2003. The adoption did not a have a material impact on our consolidated financial statements.

     Certain Financial Instruments with Characteristics of Both Liabilities and Equities

     In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity” (“SFAS No. 150”). This statement requires that an issuer classify financial instruments that are within its scope as liabilities. Many of those instruments were classified as equities under previous guidance.

     Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Certain provisions of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests have been deferred. The deferral of these provisions is expected to remain in effect while these noncontrolling interests are addressed in later phases of FASB projects.

     Excluding these deferred provisions, the adoption of the SFAS No. 150 did not have a material impact on our consolidated financial statements.

     Accounting for Certain Loans or Debt Securities Acquired in a Transfer

     In December 2003, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 03-3 (“SOP 03-3”), which addresses accounting for loan or debt securities acquired from business combinations and the resulting differences between contractual cash flows and cash flows expected to be collected. This SOP does not apply to loans originated by the Bank. This SOP limits the yield that may be accreted to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows over the investor’s initial investment in the loan. SOP 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected not be recognized as an adjustment of yield, loss accrual, or valuation allowance. SOP 03-3 also prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within in the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of individual loans, pools of loans and loans acquired in a purchase business combination.

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     SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. For loans acquired in fiscal years beginning on or before December 15, 2004, decreases in cash flows expected to be collected should be applied prospectively. The Company does not expect the adoption of SOP 03-3 to have a material impact on the financial condition or operating results of the Company.

     Other-Than-Temporary Impairment and Its Application to Certain Investments

     In early 2003, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”; this rule clarification is effective for fiscal years rending after June 15, 2004. EITF 03-1 clarifies the investment impairment methodology for debt and equity securities within the scope of SFAS No. 115, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and SFAS No. 124, “Accounting for Certain Investments Held by Not-For-Profit Organizations”. The Company does not expect the adoption of EITF 03-1 to have a material impact on the financial condition or operating results of the Company.

3.

Cash and Due From Banks

     The following table summarizes the interest-bearing and noninterest-bearing components of Cash and Due from Banks on the dates indicated (dollars in thousands):

     The Bank is required to maintain a percentage of its deposit balances as reserves either in cash or on deposit at the Federal Reserve Bank. At both June 30, 2004 and December 31, 2003, the reserve requirement was $6.8 million.

4.

Business Combinations, Goodwill and Intangibles Assets

     In July 2003, the Company completed the acquisition of privately held First Continental Bank (“FCB”), a full-service commercial bank headquartered in Rosemead, California. Pro forma consolidated results of operations for the three and six months ended June 30, 2003 as though FCB had been acquired as of January 1, 2003 follow (dollars in thousands, except earnings per share):

     In accordance with SFAS No. 142 and No. 141, goodwill resulting from the Company’s acquisitions will not be amortized to expense over a fixed period of time but will be tested for impairment at least annually. During the second quarter of 2004, the Company finalized its purchase accounting with respect to the acquisition and as a result, there was a $2.3 million reduction in goodwill. As of June 30, 2004 and December 31, 2003, the balance of goodwill totaled $85.1 million and $87.4 million, respectively. The Company will continue to review goodwill for impairment in the future.

     Other than goodwill, the Company has no intangible assets with indefinite lives. Intangible assets with finite lives, consisting primarily of core deposit intangibles, are amortized over their estimated period of remaining benefit; such amortization expense was $482,000 and $538,000 for the three months ended June 30, 2004 and

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2003, respectively. Amortization expense of $715,000 and $1.1 million were recorded for the six months ended June 30, 2004 and 2003, respectively. Additionally, loan servicing assets are capitalized, reported as Other Assets and amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Amortization expense for loan servicing assets was $463,000 and $58,000 for the three months ended June 30, 2004 and 2003, respectively. Amortization expense of $617,000 and $147,000 were recorded for the six months ended June 30, 2004 and 2003, respectively. Intangible assets are analyzed for impairment annually and adjusted accordingly. During the three months ended June 30, 2004, approximately $80,000 of the capitalized servicing asset was deemed impaired; no such impairment was recorded during the first quarter of 2004.

     The net carrying amount of intangible assets and the associated accumulated amortization are as follows:

     The amortization expense for amortizable intangible assets for the years ending December 31, 2004, 2005, 2006, 2007 and 2008 is estimated to be $2.7 million, $2.5 million, $2.1 million, $1.8 million and $1.6 million, respectively.

5.

Earnings per Share

     The following are the basic and diluted earnings per share for the periods then ended:

(1)

Effective April 8, 2003, the Company completed a two-for-one stock split. Accordingly, the financial statements for the three and six months ended June 30, 2003 presented have been restated to reflect the effect of the stock split.

6.

Comprehensive Income

     SFAS No. 130, “Reporting Comprehensive Income,” establishes presentation and disclosure requirements for comprehensive income. For the Company, comprehensive income consists of net income and the change in unrealized gains and losses on available-for-sale securities. For the three months ended June 30, 2004, total

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comprehensive loss was $4.3 million, a decrease of $16.0 million compared to the three months ended June 30, 2003. Net income for the three months ended June 30, 2004, was $20.3 million, and net unrealized losses on available-for-sale securities increased by $24.6 million. For the corresponding period of 2003, net income was $15.4 million, and net unrealized gains on available-for-sale securities decreased by $3.8 million.

     For the six months ended June 30, 2004 and 2003, total comprehensive income was $25.0 million and $27.7 million, respectively. Net income for the six months ended June 30, 2004, was $40.1 million, and net unrealized losses on available-for-sale securities increased by $15.1 million. For the corresponding period of 2003, net income was $29.4 million and net unrealized gains on available-for-sale securities decreased by $1.6 million.

7.

Derivative Financial Instruments and Financial Instruments with Off-Balance-Sheet Risk

     The Company is party to derivative financial instruments and financial instruments with off-balance-sheet credit risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in foreign currency and interest rates. The Company does not hold or issue financial instruments for trading or speculative purposes.

     The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For interest-rate swap and cap transactions, forward commitments to sell loans and foreign exchange contracts, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its interest-rate swap and cap agreements, foreign exchange contracts, and forward commitments to sell loans, and foreign exchange contracts through credit approvals, limits, and monitoring procedures. The Company does not require collateral or other security to support interest-rate swap transactions with credit risk.

     The following table sets forth the contractual or notional amounts of derivative financial instruments and financial instruments with off-balance-sheet risk as of June 30, 2004 and December 31, 2003 (dollars in thousands):

     Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party. Collateral held generally includes residential or commercial real estate, accounts receivable, or other assets.

     Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. These letters of credit are usually secured by inventories or by deposits held at the Company.

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     Foreign exchange contracts are contracts to purchase or sell currencies in the over-the-counter market. Such contracts can be either for immediate or forward delivery. Entering into foreign exchange contract agreements involves the risk of dealing with counter parties and their ability to meet the terms of the contracts. The Bank purchases or sells foreign exchange contracts in order to hedge a balance sheet or off-balance-sheet foreign exchange position. Additionally, the Bank purchases and sells foreign exchange contracts for customers, as long as the foreign exchange risk is hedged with an offsetting position.

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

FORWARD-LOOKING STATEMENTS

     This report on Form 10-Q may include projections or other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the Company or the Company’s wholly-owned subsidiary, the Bank. Such forward-looking statements include without limitation, statements containing the words “confident that,” “believes,” “plans,” “expects,” “anticipates,” “projects” and words of similar import and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things:

•

general economic and business conditions in those areas in which the Company or the Bank operates;

•

demographic changes;

•

competition;

•

fluctuations in market conditions, including interest or foreign exchange rates;

•

the ability of the Bank to assimilate recent acquisitions and to open new branches successfully;

•

changes in business strategies;

•

changes in governmental regulations;

•

changes in credit quality; and

•

other risks and uncertainties including those detailed in the documents the Company files from time to time with the Securities and Exchange Commission (“SEC”).

     Further description of the risks and uncertainties are included in detail in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the SEC.

     The following discussion and analysis is intended to provide details of the results of operations of the Company for the three and six months ended June 30, 2004 and 2003, and financial condition at June 30, 2004 and at December 31, 2003. The following discussion should be read in conjunction with the information set forth in the Company’s Consolidated Financial Statements and notes thereto and other financial data included in this report.

SUMMARY RESULTS

     UCBH Holdings, Inc. (“we”, “our”, and “Company”), operating through its principal subsidiary, United Commercial Bank (“Bank”), earned $20.3 million for the second quarter of 2004, compared to $15.4 million in the second quarter last year, an increase of $4.8 million, or 31.4%. Fully diluted earnings per share for the second quarter of 2004 were $0.43 compared to $0.35 in the second quarter of 2003. For the six months ended June 30, 2004, we earned $40.1 million, an increase of 10.7 million or 36.6% compared to the same period in 2003. Fully diluted earnings per share for the six months ended June 30, 2004 and 2003 were $0.84 and $0.66, respectively. For the 2004 year, we anticipate our earnings per share to be in the $1.72 to $1.75 range.

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     Our revenues consist of approximately 90% net interest income, which represents the difference between interest income and interest expense, and 10% noninterest income. We generate interest income primarily on the loans and securities that we hold in our portfolios. Interest expense results from the interest that we pay customers on their deposits and debt holders on our borrowings. Noninterest income results primarily from commercial banking fees, charges on deposit accounts and gains on sales of U.S. Small Business Administration (“SBA”) loans and securities.

     As a result of the increased earnings of the organization, our return on average assets (“ROA”) increased to 1.39% and 1.40% for the three months and six month periods ended June 30, 2004, compared with 1.25% and 1.21%, respectively, for corresponding periods of 2003. Our return on average equity (“ROE”) was 18.54% and 18.56% for the same periods in 2004, compared to 20.12% and 19.68%, respectively, for the corresponding periods in 2003. The decrease in the ROE reflects the net effect of the ROE reduction created by the acquisition of First Continental Bank (“FCB”) for 100% stock in 2003, partially offset by our increased earnings in 2004 compared with 2003. We anticipate that our earnings will continue to increase for the rest of the year, which will improve our ROA and ROE as well.

     Our Efficiency Ratio, which represents the ratio of total noninterest expense to the sum of net interest income and noninterest income, increased to 41.50% for the second quarter of 2004, compared to 39.19% for the corresponding period of the prior year. The Efficiency Ratio for the six months ended June 30, 2004 and 2003 was 40.97% and 42.50%, respectively. The quarter over quarter increase was primarily due to increased expenses related to growth associated with our commercial banking division and the Hong Kong branch, as well as the acquisition of FCB in July 2003.

     Compared to the prior periods, our interest income increased by $8.9 million and $16.4 million, or 14.1% and 13.1% for the three and six months ended June 30, 2004, respectively, primarily as a result of increases in our average interest-earning assets. The average interest-earning assets increased as a result of our loan production and as a result of our acquisition of FCB in July 2003. Our average loans outstanding were $3.94 billion and $3.89 billion in the three and six months ended June 30, 2004, compared with $3.19 billion and $3.13 billion for the same period in 2003.

     As a financial institution, we are sensitive to fluctuations in market interest rates. As a result of the decreases in market interest rates during the first six months of 2004, the yields on our loans and securities have been decreasing. The interest rate decreases however have also reduced the cost of our deposits and borrowings.

     The decrease in the loan loss provision for the three and six months ended June 30, 2004 compared with the corresponding periods of the prior year reflect the net effect of lower provisions necessary for increased multifamily and residential loans, partially offset by an increased provision resulting from the increase in the commercial real estate and commercial business loan commitments. Further, the asset quality of the residential (one to four family) and multifamily loan portfolios was strong during these periods. This strong asset quality resulted in a decrease in the provision for these portfolios.

     Our noninterest income decreased in the second quarter of 2004, to $5.4 million from $6.1 million in the second quarter of 2003, as a result of decreased gains on sales of securities and increase equity losses in other equity investments. These were partially offset by increases in commercial banking and other fees and gains on sales of SBA loans. Noninterest income for the six months ended June 30, 2004 and 2003 totaled $12.2 million and $9.8 million, respectively.

     Our noninterest expenses increased to $23.0 million and $45.8 million in the three and six months ended June 30, 2004, from $17.9 million and $37.7 million for the corresponding periods of 2003. This increase reflects the acquisition of FCB in July 2003, the expansion of our Commercial Banking Division and the expansion of our Hong Kong Branch.

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TRENDS ANALYSIS

     Although we have operated in California since 1974, we operated as a thrift until 1998. In 1998, we changed our charter to that of a commercial bank and began operating as a Commercial Bank. Presented below are charts reflecting our growth trends since becoming a Commercial Bank.

     Following are graphs reflecting our total balance sheet, loan and deposit growth since 1998:

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     We have grown our balance sheet at a compounded rate of 20.8% since 1998. In 2002, we acquired Bank of Canton California (“BCC”), with assets of $1.45 billion, which accounts for the substantial increase in the assets that year. Similarly, in 2003, we acquired First Continental Bank with assets of $356.7 million. The balance sheet growth without these acquisitions was at a compounded annualized rate of 12.5% since 1998. Our ongoing goal is to grow our balance sheet organically in a range of 14% to 17% per annum.

     Our loan portfolio has grown at a compounded rate of 19.9% since 1998. Without the acquisitions of BCC and FCB, the growth rate was 15.4%, compounded annually. Our ongoing goal is to increase our loan portfolio by a range of 15% to 20% annually. We grow our loan portfolio origination network and do not rely on the purchase of loans to meet our growth objectives.

     Our deposits have grown at a compounded rate of 21.8% since 1998. Without the acquisitions of BCC and FCB, the growth rate was 13.4%, compounded annually. Our core deposits have grown at a rate of 36.0% since becoming a commercial bank.

     Through making further incursions in our Asian customer-oriented niche market and by expanding into new market areas, management believes that it will meet the stated growth objectives for 2004.

     Following is a table reflecting our asset quality since becoming a commercial bank:

     We have maintained a high credit quality by adhering to our credit underwriting criteria. Our goal is to maintain nonperforming assets to 25 basis points or less of ending assets. We have achieved this operating performance metric for twenty-one consecutive quarters.

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     The chart below presents selected operating metrics of the Company since becoming a commercial bank:

(1)		Efficiency ratio represents total noninterest expense divided by the sum of net interest income and total noninterest income.
(2)		Net interest margin represents net interest income divided by average interest-earning assets and calculated on a tax equivalent basis.

     Our net interest margin improvement results from the continuing balance sheet restructuring, by reducing the concentration in lower yielding loans and increasing core deposits. The ROA and ROE have increased, accordingly. When we acquired BCC, we blended our 4.02% margin with their 2.23% margin. BCC had a heavy concentration of securities and Certificates of Deposit, which caused compression in the margin. Through restructuring the BCC assets and deposits, we have improved our margin.

     Capital

     We have increased our capital since 1998 through the retention of earnings and the issuance of new stock in conjunction with acquisitions. The charts below present our capital level and Tier I and Total risk-based capital ratios since 1998. As of June 30, 2004, the Bank met the “well capitalized” requirements under these guidelines.

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     We have declared dividends since 1999 and plan to continue dividend payments for the next year. The chart below presents our dividend payments on a per share basis and in total since 1998. The dividends for 2004 have been annualized to be comparable with prior periods.

CORPORATE DEVELOPMENTS

     The Bank plans to expand its branch presence in key target markets during 2004. In June 2004, the Bank opened a new branch in Torrance, California, the Bank’s sixteenth in the Southern California region. A second branch in the region is also planned with lease negotiations currently in process and an anticipated opening date in the third quarter of 2004. Also in June 2004, the Bank opened a new branch in Foster City, California. Recently, the Bank signed a lease for a second branch in New York City. The Bank is currently in the process of pursuing a lease for a third metropolitan New York location.

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     During the first quarter of 2004, the Company’s wholly owned subsidiary UCB Investment Services (“UCBIS”) commenced business. UCBIS is a registered broker-dealer with the SEC and a member of the NASD and Securities Investor Protection Corporation (“SIPC”). UCBIS will act as an introducing broker in the sales of mutual funds, listed and over-the-counter equity securities, and corporate, municipal, and U.S. government debt. UCBIS will also sell fixed and variable annuities and covered options for its customers. UCBIS is registered with the Municipal Securities Rulemaking Board (“MSRB”). UCBIS will not have custody or possession of customer funds or securities. Customer accounts will be carried on a fully-disclosed basis at UCBIS’ clearing firm National Financial Services, LLC.

CRITICAL ACCOUNTING ESTIMATES

     A number of critical accounting policies are used in the preparation of the Consolidated Financial Statements, which this discussion accompanies.

     The Use of Estimates. The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the amounts of reported assets and liabilities as well as contingent assets and liabilities as of the date of these financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period(s). The Company has established detailed policies and control procedures that are intended to ensure that valuation methods are well controlled and applied consistently from period to period unless actual results indicate a change in estimate is required.

     Allowance for Loan Losses. The allowance for loan losses covers the commercial and consumer loan portfolios and is intended to adjust the value of the Company’s loan assets for probable credit losses inherent at a balance sheet date in accordance with GAAP. The methodology for calculating the allowance involves significant judgment. First and foremost, it involves early detection of credits that are deteriorating. Second, it involves management’s judgment to derive loss factors.

     The Company uses a risk grading system to determine the credit quality of its loans. Loans are reviewed for information affecting the obligor’s ability to fulfill contractual obligations. In assessing the risk grading of a particular loan, the factors considered include:

•

the borrower’s debt capacity and financial flexibility

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the level of earnings of the borrowers

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the amount and sources of repayment

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the level and nature of contingencies, management strength

•

the quality of the collateral, and

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the industry in which the borrower operates.

     These factors are based on an evaluation of historical information as well as subjective assessment and interpretation. Emphasizing one factor over another or considering additional factors that may be relevant in determining the risk grading of a particular loan, but which are not currently an explicit part of the Company’s methodology, could affect the risk grade assigned to that loan.

     Management also applies judgment to derive loss factors associated with each credit facility. These loss factors are considered by type of obligor and collateral. Whenever possible, the Company uses its own historical loss experience or independent verifiable data to estimate the loss factors. Many factors can affect management’s estimates of a loss factor. The application of different loss factors would change the amount of the allowance for credit losses determined to be appropriate by the Company. Given the process the Company follows in determining the risk grading of its loans, management believes the current risk gradings and loss factors assigned to loans are appropriate.

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     Management’s judgment is also applied when considering uncertainties based on current macroeconomic conditions and other factors. For example, judgment as to the economic outlook in California will affect management’s assessment of probable losses based on exposure to that marketplace. Notwithstanding the judgment required in assessing the allowance for loan losses, the Company believes its estimate for the allowance for loan losses is adequate at the balance sheet date. In the second quarter of 2004, we reclassified approximately $3.1 million of the allowance for loan losses to other liabilities. This reclassification represents allocated loss allowances for unfunded loan commitments and off-balance-sheet commitments for letters of credit. For comparison purposes, $2.8 million of the allowance for loan losses in December 31, 2003 was also reclassified.

     Fair Value of Certain Assets. Certain assets of the Company are recorded at fair value. In some cases, the fair value used is an estimate. Included among these assets are securities that are classified as available for sale, goodwill and other intangible assets, other real estate owned and impaired loans. These estimates may change from period to period as they are affected by changes in interest rates and other market conditions. If after the Company had to sell one of these assets and then discover that its estimate of fair value had been too high, then losses not anticipated or greater than anticipated could result. Gains not anticipated or greater than anticipated could result if the Company were to sell one of these assets, subsequently discovering that its estimate of fair value had been too low. The Company arrives at estimates of fair value as follows:

     Available-for-Sale Securities. The fair values of most securities classified as available for sale are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

     Goodwill and Other Intangible Assets. The Company establishes goodwill and other intangible assets including core deposit intangibles and capitalized servicing rights by estimating fair value of assets and liabilities acquired using various valuation approaches such as market value, replacement costs and estimated cash flows for future periods. Additionally, the Company must assess goodwill each year and other intangible assets each quarter for impairment. This assessment involves reviewing or revising estimated cash flows for future periods. If the future cash flows are materially less than the estimates, the Company would be required to take a charge against earnings to write down the asset to the lower fair value.

     Mortgage Servicing Rights. Mortgage servicing rights arise from the sale of loans through securitization and retention of 1-4 single-family and multifamily loans. The market value for servicing is based upon the coupon rates, maturity, and prepayment rates experienced for the mortgages being serviced. The value of mortgage servicing rights at inception is based upon management’s best estimate of the market value based upon discounted cash flows.

     Income Taxes. The provision for income taxes is based on income reported for financial statement purposes and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes.

     The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is established, when necessary, to reduce the deferred tax assets to the amount that is more likely than not to be realized.

     Alternative Methods of Accounting. The accounting and reporting policies of the Company are in accordance with GAAP and conform to practices within the banking industry.

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     When the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” in 1996, it elected to continue to use the method of accounting for stock options that did not recognize compensation expense at the time options were granted. As required by SFAS No. 123, pro forma amounts of compensation expense and the pro forma effect on net income and earnings per share are disclosed each quarter as if the Company had instead elected to use the accounting method that recognizes compensation expense. The Company adopted SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” during 2003. The pro forma amounts of compensation expense and the pro forma effect on net income and earnings per share are disclosed in Note 2 to the Consolidated Financial Statements using the Black-Scholes model for pricing options. Had the Company elected to adopt the SFAS No. 123 fair value based method of accounting instead of pro forma disclosure, additional compensation expense would have been recognized.

RESULTS OF OPERATIONS

     General. The Company’s primary source of income is net interest income, which is the difference between interest income from interest-earning assets, such as loans and securities, and interest paid on interest-bearing liabilities, such as deposits and other borrowings used to fund those assets. The Company’s net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds. The Company also generates noninterest income, including commercial banking fees, gain on sale of U.S. Small Business Administration (“SBA”) loans, gain on sale of securities, and other transactional fees. The Company’s source of noninterest income derives predominantly from commercial banking fees plus any gains on sale of loans and securities. The Company’s noninterest expenses consist primarily of personnel, occupancy, professional fees, and other operating expenses. The Company’s results of operations are affected by its provision for loan losses and may also be significantly affected by other factors including general economic and competitive conditions, changes in market interest rates, governmental policies and the actions of regulatory agencies.

     Operating Data and Ratios

     Following is a table of selected operating metrics for the quarters ended June 30, 2004 and 2003:

     The consolidated net income of the Company during the three months ended June 30, 2004, increased by $4.8 million compared with the corresponding period of the preceding year. The increase in net income was primarily due to an increase in net interest income, which was partially offset by an increase in noninterest expense, during the current period as compared to the corresponding period in the prior year.

     The annualized return on average assets (“ROA”) ratio for the three months ended June 30, 2004 improved primarily due to higher net interest income. The annualized return on average equity (“ROE”) for the three months ended June 30, 2004 was 1.58% lower than the ROE for the corresponding period of the prior year, reflecting the Company’s acquisition of First Continental Bank (“FCB “) in July 2003 for 100% stock.

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     Following is a table of selected operating metrics for the six-month periods ended June 30, 2004 and 2003:

     The consolidated net income of the Company during the six months ended June 30, 2004, increased by $10.7 million, or 36.5%, to $40.1 million, compared to $29.4 million for the corresponding period of the preceding year, primarily as a result of the increase in interest-earning assets.

     The ROA for the six months ended June 30, 2004 improved primarily due to higher net income. The ROE decreased for the six months ended June 30, 2004 compared to the corresponding period in the prior year due to the Company’s purchase of FCB.

     Net Interest Income. Following is a table of selected ratios that reflect the dynamics of the interest income for the Company for the three-month periods ending June 30, 2004 and 2003:

(1)

Calculated on a tax equivalent basis.

     Net interest income before provision for loan losses increased $10.3 million for the three months ended June 30, 2004 compared to the corresponding quarter in prior year. The increase in net interest income reflects the growth in interest-earning assets, primarily in the Company’s loan portfolio, coupled with a 24 basis point improvement in the net interest margin.

     The average cost of deposits decreased 38 basis points from the three months ended June 30, 2003 to the three months ended June 30, 2004. This savings was partially offset by a 40 basis point decrease in average loan yields from the three-month period ended June 30, 2003 to the comparable period in 2004. The decrease in all areas reflects the decline in the overall market interest rate environment from the prior year. The decrease in loan yields reflects repricing of adjustable-rate loans resulting from reductions in market interest rate indices, plus the impact of accelerated prepayments on higher-yielding loans due to the lower market interest rates.

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     Following is a table of selected ratios that reflect the dynamics of the interest income for the Company for the six-month periods ending June 30, 2004 and 2003:

     Net interest income before provision for loan losses increased $20.5 million for the six months ended June 30, 2004 compared to the corresponding period in prior year. The increase in net interest income reflects the growth in interest-earning assets, primarily in the Company’s loan portfolio, coupled with a 27 basis point improvement in the net interest margin. The average cost of deposits decreased 44 basis points from the six-month period ended June 30, 2003 to the corresponding period in 2004. This savings was partially offset by a 33 basis point decrease in average loan yields from for the three months ended June 30, 2003 to the comparable period in 2004. The decrease in loan yields and the deposit cost reflects the decline in the overall market interest rate environment from the prior year. The decrease in loan yields reflects repricing of adjustable-rate loans resulting from reductions in market interest rate indices, as well as the impact of accelerated prepayments on higher-yielding loans due to the lower market interest rates.

     The net interest margin, calculated on a tax equivalent basis, was 3.72% for the six months ended June 30, 2004, as compared to 3.45% for the corresponding period of 2003. Certain interest-earning assets of the Company qualify for state or federal tax exemptions or credits. The net interest margin, calculated on a tax equivalent basis, considers the tax benefit derived from these assets. The increase in the net interest margin reflects the favorable impact of increasing loans while decreasing the cost of deposits.

     Following is a table reflecting selected average balances of the Company’s assets and liabilities for the six-months ended June 30, 2004 and 2003:

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     The following table presents the composition of the Bank’s average loan portfolio at the dates indicated:

     The following table presents components of the Bank’s average outstanding deposits at the dates indicated:

     The increase of $809.6 million on average earning assets for the six months ended June 30, 2004 resulted primarily from organic commercial loan growth. Average outstanding loans increased $761.0 million for the six months ended June 30, 2004 from the same period last year as a result of the Bank’s continued focus on commercial lending activities, and the FCB acquisition. Average commercial loan balances increased $761.3 million for the six months ended June 30, 2004. This increase is primarily due to the Bank’s continued emphasis on commercial real estate and commercial business loans, and expansion of its Hong Kong branch. Average consumer loans for the six months ended June 30, 2004 and 2003 remained relatively constant at $352.3 million and $352.6 million. New loan commitments of $1.17 billion for the six months ended June 30, 2004 were comprised of $1.02 billion in commercial and $148.1 million in consumer commitments. As of the June 30, 2004 the loan pipeline approximated $1.21 billion, which was comprised of $1.17 billion for commercial loans and $40.1 million for consumer loans.

     Average securities increased $44.5 million for the first six months ended June 30, 2004. This increase was primarily due to purchases that occurred early as well as internal securitizations during the year. Securities prepayments, which accelerated with the lower market interest rate environment, were substantially replaced with new securities purchases. During the first six months of 2004, the Company also sold securities with an aggregate principal balance of $484.6 million. Such securities were sold to protect the Company from both accelerating prepayments and from increases in market interest rates. The Company’s restructuring strategy was to replace securities that have high prepayment and extension risk with shorter-dated securities with less prepayment and extension risk.

     Average outstanding deposits increased $602.2 million for the six months ended June 30, 2004 compared to the corresponding period of 2003. This increase is a result of the Company’s ongoing focus on the generation of commercial and consumer demand deposits and the FCB acquisition. Both average interest-bearing and average noninterest bearing deposits increased $510.6 million and $91.7 million, respectively, for the six months ended June 30, 2004 compared to the corresponding period in 2003.

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

(1)		Nonaccrual loans are included in the table for computation purposes, but the foregoing interest on such loans is excluded.
(2)		Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(3)		Calculated on a nontax equivalent basis.
(4)		Net interest margin represents net interest income divided by average interest-earning assets.

     Provision for Loan Losses. The Company uses a systematic methodology to calculate the allowance for loan losses. Through application of this methodology, which takes into account the loan portfolio mix, credit quality, loan growth, the amount and trends relating to the Company’s delinquent and nonperforming loans, regulatory policies, general economic conditions and other factors relating to the collectibility of loans in the portfolio, management determines the appropriateness of the allowance for loan losses, which is adjusted by quarterly provisions charged against earnings.

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     For the three months ended June 30, 2004, our provision for loan losses was $1.0 million, a decrease of $1.8 million, compared to a provision of $2.8 million for the corresponding period of 2003. For the six months ended June 30, 2004, our provision for loan losses was $3.2 million, a decrease of $642,000, compared to a provision of $3.8 million for the corresponding period of 2003. The provision for loan losses for the six months ended June 30, 2004, resulted from the following factors:

	•		Loan Growth and Portfolio Composition:
			Our overall loan portfolio grew $257.8 million from December 31, 2003 to June 30, 2004, primarily as a result of the Bank’s continued focus on commercial lending activities. Loan growth remained concentrated in the Bank’s commercial portfolio.
			Although loan growth remained concentrated in the commercial loan portfolio, the multifamily segment of the commercial commitments achieved the strongest growth rate. The multifamily loan commitments increased by 37.6% and 36.5% in the three and six months ended June 30, 2004 from the corresponding periods of 2003, respectively. Multifamily loans grew at an annualized rate of 12.1% during the first six months of 2004.
			The residential mortgage loan commitments also increased substantially in 2004. Residential commitments increased by 168.3% in the second quarter of 2004, compared with the second quarter of 2003. For the six months ended June 30, 2004, residential commitments increased by 94.8% compared with the corresponding period of 2003. Residential loans grew at an annualized rate of 69.8% during the first six months of 2004.
			Commercial real estate commitments decreased by 3.5% in the quarter ended June 30, 2004, compared with the corresponding period of the prior year. For the six months ended June 30, 2004, commercial real estate commitments increased by 15.2%. Commercial real estate loans increased at an annualized rate of 4.5% during the first six months of 2004.
			During the second quarter of 2004, outstanding construction commitments increased 15.9% compared to the corresponding period of the prior year. For the first six months of 2004, outstanding construction commitments increased 20.3% compared to the first half of 2003.

	•		Asset Quality: Criticized loans, which are defined as those we classify as risk-graded Special Mention, Substandard, Doubtful, or Loss, were less than 2.0% of total loans at June 30, 2004 and December 31, 2003. Nonaccrual loans increased from $5.9 million at December 31, 2003, to $6.8 million at June 30, 2004. The increase reflects one new commercial real-estate loan that was placed on nonaccrual during the second quarter of 2004.
	•		Net Charge-offs. Net charge-offs of $1.4 million for the six months ended June 30, 2004, increased as compared to net charge-offs of $401,000 for the corresponding period of 2003. The charge-offs in the six months ended June 30, 2004 and 2003 are related primarily to commercial business lending.
	•		Management Judgment: To derive the provision for loan losses during the three and six months ended June 30, 2004, judgment is applied when considering uncertainties based on current macroeconomic conditions and other factors. For example, judgment as to the economic outlook in California will affect management’s assessment of potential losses based on exposure to that marketplace.

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     The asset quality of the residential (one to four family) and multifamily loan portfolios was strong during the three and six-month periods ended June 30, 2004. This strong asset quality resulted in a decrease in the provision for these portfolios. The decrease in the loan loss provision for the three and six months ended June 30, 2004 compared with the corresponding periods of the prior year reflect the net effect of lower provisions necessary for increased multifamily and residential loans, partially offset by an increased provision resulting from the increase in the commercial real estate and commercial business loan commitments.

     In the quarter ended June 30, 2004, the Company reclassified approximately $3.1 million from the allowance for loan losses related to unfunded commitments and off-balance-sheet commitments for letters of credit to other liabilities. The reclassification reduced the allowance from $62.6 million, or 1.55% of loans to $59.5 million, or 1.47% of loans. For comparison purposes, we reclassified $2.8 million of the December 31, 2003 allowance for loan losses balance, resulting in the reduction from $60.9 million or 1.61% of loans, to $58.1 million or 1.53% of loans.

     Noninterest Income

     The following tables present the composition of noninterest income for the periods indicated:

     Noninterest income for the three months ended June 30, 2004 decreased $697,000 compared to the corresponding period of 2003 primarily as a result of the recognition of our share of equity losses on CRA-related investments and a lower level of securities sales. As disclosed in Note 1 to the financial statements, the company invests in CRA qualified investments. Such investments have increased in order to meet requirements under the Community Reinvestment Act. In the Federal Deposit Insurance Corporation’s most recently released public reports dated May 10, 2004, the Bank received an “outstanding” rating. Approximately 38% of the Company’s historical CRA investment portfolio is in affordable housing projects which are expected to return a net of tax internal rate of return of approximately 7%. The above $1.5 million is our share of the underlying investment equity losses exclusive of tax benefits and credits.

     Commercial banking and other fees increased $495,000 for the three ended June 30, 2004 compared to the corresponding period of 2003. This is a result of increased commercial banking activities, primarily in trade finance business. Gains on sale of Small Business Administration (“SBA”) loans totaled $1.4 million for the three months ended June 30, 2004. There were no SBA loan sales during the corresponding period in 2003. Gains recognized on sale of securities decreased $1.2 million for the three months ended June 30, 2004 to $2.6 million, compared to $3.8 million in the corresponding quarter of 2003. The decrease in the securities gains reflects the June 2004 completion of the securities restructuring program that the Company initiated in the second quarter of 2003.

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     The following tables present the composition of noninterest income for the periods indicated:

     Noninterest income for the six months ended June 30, 2004 increased $2.4 million compared to the corresponding period of 2003. This increase primarily resulted from increases in gains from sale of securities and loans. Commercial banking fees increased $708,000 for the six months ended June 30, 2004 compared to the corresponding period of 2003. This is a result of increased commercial banking activities, primarily in trade finance business. Gains recognized on sale of securities increased $1.6 million for the six months ended June 30, 2004. The increase relates to the completion of the securities restructuring program discussed above. Gains on sale of loans increased by $1.4 million for the six months ended June 30, 2004 compared to the corresponding period in 2003 as a result of SBA Loan sales. As discussed above, the Company recognized $1.5 million of equity losses from CRA related investments during the six months ended June 30, 2004.

     Noninterest Expense

     The following tables present the composition of noninterest expense during the periods indicated: