UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission File Number: 000-24947

UCBH HOLDINGS, INC.

Registrant’s telephone number, including area code: (415) 315-2800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

As of April 30, 2005, the Registrant had 91,492,672 shares of common stock, par value $0.01 per share, outstanding.

UCBH HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

UCBH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Par Value)

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

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UCBH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

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

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UCBH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands, Except for Per Share Data)
(Unaudited)

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

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UCBH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

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

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UCBH HOLDINGS, INC. AND SUBSIDIARIES

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 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 three months ended March 31, 2004, the Company’s wholly owned subsidiary, UCB Investment Services, Inc. (“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”). The Company also has representative offices in Shenzhen, China and Taipei, Taiwan.

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 statement 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 (“FIN 46R”), “Consolidation of Variable Interest Entities”, 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 (the “APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock”. Additionally, the Company recognizes a liability and a corresponding increase in CRA investments for delayed equity contributions that are unconditional and legally binding relating to affordable housing investments pursuant to Emerging Issues Task Force (“EITF”) Issue No. 94-1, “Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects”. Other commitments are disclosed in Note 8. None of these investments meet the requirements of FIN 46R, and therefore, are not consolidated.

     On January 27, 2005, the Company declared a two-for-one stock split in the form of a stock dividend for the shareholders of record as of March 31, 2005, and distributable on April 12, 2005. Accordingly, the financial statements for all periods presented have been restated to reflect the effect of the stock split.

     Operating results for the three months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

     Please refer to the audited consolidated financial statements and related notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004, 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.

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Use of Estimates in Preparation of Financial Statements

     The preparation of financial statements in conformity with GAAP 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.

Reclassification

     Certain reclassifications have been made to prior years’ consolidated financial statements in order to conform to the current period’s presentation.

Accounting for Stock-Based Compensation

     The Company has elected to continue accounting for employee stock-based compensation using the intrinsic value method in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”, rather than the alternative fair value accounting allowed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. Under APB No. 25, the Company records no stock-based employee compensation cost if the stock options are granted with an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.

     Had compensation cost for the Company’s stock-based compensation arrangements for employees been determined based on the fair value at grant date of the awards for the three months ended March 31, 2005 and 2004, consistent with the provisions of SFAS No. 123, the Company’s net income and earnings per share would have been the pro forma amounts as follows (dollars in thousands, except for per share data):

     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. The impact of outstanding non-vested stock options has been excluded from the pro forma calculation.

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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 for the three months ended March 31, 2005 and 2004:

2. Recent Accounting Pronouncements

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

     In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF Issue No. 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”, and for equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method under APB Opinion No. 18 and related interpretations (hereinafter referred to as “cost method investments”).

     Certain disclosure requirements regarding investments accounted for under SFAS No. 115 and SFAS No. 124 are effective for annual financial statements for fiscal years ending after December 31, 2003. These currently effective disclosure requirements have been adopted by the Company and did not have a material impact on the financial condition or operating results of the Company. Additional disclosure requirements regarding cost method investments are effective for annual periods ending after June 15, 2004. The adoption of these disclosure requirements did not have a material impact on the financial condition or operating results of the Company.

     In September 2004, the FASB issued a final FASB Staff Position (“FSP”), FSP EITF 03-1-1, delaying the effective date of the measurement and recognition guidance indefinitely. Excluding the deferred guidance, the adoption of EITF No. 03-01 did not have a material impact on the financial condition or operating results of the Company.

Accounting for Stock-Based Compensation

     On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic value method as prescribed under APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and requires that such transactions be accounted for using a fair value-based method. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123R had been scheduled to be effective for the interim and annual periods beginning after June 15, 2005. However, in April 2005, the Securities and Exchange Commission amended Rule 4-01(a) of Regulation S-X to amend the date for compliance with SFAS No. 123R, so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with SFAS No. 123R beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Thus, SFAS No. 123R will not become effective for the Company until January 1, 2006.

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     SFAS No. 123R may be adopted using one of two methods: (1) A “modified perspective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date; (2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The adoption of SFAS No. 123R may have a material impact on the Company’s financial position and results of operation.

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 loans or debt securities acquired in a transfer 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 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.

     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 adoption of SOP 03-3 did not 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 at March 31, 2005, and December 31, 2004 (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 March 31, 2005, and December 31, 2004, the reserve requirement was $10.1 million and $6.8 million, respectively.

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4. Loans

     Loans held in portfolio in the commercial banking business consist of the following at March 31, 2005, and December 31, 2004 (dollars in thousands):

     The activity in the allowance for loan losses and allowance for losses related to unfunded commitments consists of the following for the three months ended March 31, 2005 and 2004 (dollars in thousands):

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     Loans held for sale portfolio consists of the following at March 31, 2005, and December 31, 2004 (dollars in thousands):

5. Core Deposit Intangibles

     The gross carrying amount and the associated accumulated amortization for core deposit intangibles, which are included in other intangibles on the consolidated balance sheets, as of March 31, 2005, and December 31, 2004, are as follows (dollars in thousands):

     For the three months ended March 31, 2005, core deposit intangibles were reviewed for impairment, and it was determined there was no impairment. The activity in core deposit intangibles, net consists of the following for the three months ended March 31, 2005 and 2004 (dollars in thousands):

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6. Mortgage Servicing Rights

     The gross carrying amount and the associated accumulated amortization for mortgage servicing rights, which are included in other intangibles on the consolidated balance sheets, as of March 31, 2005, and December 31, 2004, are as follows (dollars in thousands):

     Amortization expense on mortgage servicing rights is recorded as a reduction in loan servicing fee income and reported as part of commercial banking and other fees. For the three months ended March 31, 2005, mortgage servicing rights were reviewed for impairment and it was determined there was no impairment. The activity in mortgage servicing rights, net consists of the following for the three months ended March 31, 2005 and 2004 (dollars in thousands):

     The Company services real estate loans for others of $1.28 billion and $1.11 billion at March 31, 2005, and December 31, 2004, respectively. These loans are not included in the consolidated balance sheets. In connection therewith, the Company held trust funds of approximately $12.0 million and $14.1 million at March 31, 2005, and December 31, 2004, respectively, all of which were segregated in separate accounts and included in the respective balance sheets. Some agreements with investors to whom the Company has sold loans have provisions that could require repurchase of loans under certain circumstances. Management does not believe that any such repurchases will be significant.

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7. Earnings Per Share

     On January 27, 2005, the Company declared a two-for-one stock split in the form of a stock dividend to shareholders of record as of March 31, 2005 and distributable on April 12, 2005. Accordingly, basic and diluted earnings per share on the consolidated statements of income for the three months ended March 31, 2005 and 2004, have been restated to reflect the impact of the stock split. Additionally, the numbers of issued and outstanding shares of the Company’s common stock on the consolidated balance sheets at March 31, 2005, and December 31, 2004, take into account the stock split. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the three months ended March 31, 2005 and 2004 (dollars in thousands, except shares and per share amounts):

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

     The Company is a party to derivative financial instruments and financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The Company does not hold or issue financial instruments for trading purposes. Financial instruments in the normal course of business include commitments to extend and purchase credit, forward commitments to sell loans, letters of credit, foreign exchange contracts, and interest-rate caps. Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the statement of financial position. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

     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 and forward commitments to sell loans, 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 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.

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     The contractual or notional amounts of derivative financial instruments and financial instruments with off-balance-sheet risk as of March 31, 2005 and December 31, 2004 are as follows (dollars in millions):

Commitments

     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 the customer’s inventories or by deposits held at the Company.

     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 fully hedged with an offsetting position.

     Interest-rate caps are interest rate protection instruments that involve the payment from the seller to the buyer of an interest differential. This differential represents the difference between current interest rates and agreed-upon rate applied to a notional principal amount. Entering into interest-rate cap agreements involves the risk of dealing with counter parties and their ability to meet the terms of the contracts. Notional principal amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. The Company may be a purchaser of interest-rate caps and swaps. At March 31, 2005, and December 31, 2004, no interest-rate caps or swaps were outstanding. For the three months ended March 31, 2005 and 2004, the impact of interest-rate caps and swaps to interest income was nil.

     Put options to buy are part of currency-linked deposits with other financial institutions. At the option of these third parties, UCB is required to buy a currency at a predefined exchange rate with another currency. Put options to sell are part of currency-linked deposits that customers have placed with UCB. At the option of UCB, the customer is obligated to buy a currency at a predefined exchange rate with another currency. The put options to buy and put options to sell, along with the related currency-linked deposits, offset each other.

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     As disclosed in Note 1, the Company has CRA investments of which a portion has been funded or remains unfunded at March 31, 2005, and December 31, 2004. Fundings are made upon request by underlying investee companies based on original commitment amounts.

9. Segment Information

     In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, the Company designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. The Company has determined that it has three reportable segments, which include domestic commercial banking, the Hong Kong branch and UCB Investment Services, Inc. The other column consists of the Hong Kong branch and UCB Investment Services, Inc. The intersegment column identifies the intersegment activities between the domestic commercial banking and other. Intersegment activities consist of funds sold and related interest by the Hong Kong branch to domestic commercial banking, Hong Kong branch short-term borrowings and related transfer pricing interest with domestic commercial banking, and a UCB Investment Services, Inc. deposit account with domestic commercial banking. Transfer pricing interest income is based on the Company’s internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. UCB Investment Services, Inc. and the Hong Kong branch commenced operations in the last half of 2003. The following is segment information for the three months ended March 31, 2005 and 2004 (dollars in thousands):

10. Federal and State Taxes on Income

     The American Jobs Creation Act of 2004 (“AJCA”), which was signed by the President of the United States of America on October 22, 2004, allows the Company, upon satisfaction of certain conditions, to repatriate reinvested foreign earnings, as defined by new Section 965 of the Internal Revenue Code (“IRC”) of 1986 (as amended), at an effective tax rate of 5.25%.

     As of April 21, 2005, the Company is considering a repatriation of up to $30 million of unremitted earnings and may record an income tax benefit of between $0 and $3.9 million as a result of the above mentioned repatriation provision for the calendar year ending December 31, 2005. As the Company has not yet completed the analysis necessary to determine the amount, if any, of the repatriation of foreign earnings subject to Section 965, no effect of any such repatriation has been reflected in its financial statements as of March 31, 2005. The Company expects to complete its evaluation of the effects of the repatriation no later than the third quarter of 2005.

11. Subsequent Event

     Management is preparing an evaluation of the merits of repaying the $30.0 million of Junior Subordinated Debentures issued in 1998, which have an interest rate of 9.375% and may be prepaid at par commencing in the second quarter of 2005.

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

     This quarterly report on Form 10-Q may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to the Company’s and the Bank’s operations and business environment, all of which are difficult to predict, and many of which are beyond the control of the Company and the Bank. The factors include, among others:

•	economic and business conditions in the areas and markets in which the Company and the Bank operate, particularly those affecting loans secured by real estate;

•	deterioration or improvement in the ability of the Bank’s borrowers to pay their debts to the Bank;

•	market fluctuations such as those affecting interest and foreign exchange rates and the value of securities in which the Bank invests;

•	competition from other financial institutions, whether banks, investment banks, insurance companies or others;

•	the ability of the Bank to assimilate acquisitions, enter new markets and lines of business, and open new branches, successfully;

•	changes in business strategies;

•	changes in tax law and governmental regulation of financial institutions;

•	demographic changes; and

•	other risks and uncertainties, including those discussed in the documents the Company files with the Securities and Exchange Commission (“SEC”).

     The foregoing may cause the actual results and performance of the Company and the Bank to be materially different from the results and performance indicated or suggested by the forward-looking statements. 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, 2004, 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 months ended March 31, 2005 and 2004, and financial position at March 31, 2005, and at December 31, 2004. 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 the “Company”), the holding company of United Commercial Bank (the “Bank”), had net income of $21.8 million for the three months ended March 31, 2005, up 10%, compared with net income of $19.8 million for the three months ended March 31, 2004. Diluted earnings per share on a post-split basis was $0.23 for the three months ended March 31, 2005, compared with $0.21 for the three months ended March 31, 2004, adjusted for the April 12, 2005, two-for-one stock split.

     Our revenues for the three months ended March 31, 2005, consist of approximately 87.3% net interest income, which represents the difference between interest income and interest expense, and 12.7% 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 multifamily loans, U.S. Small Business Administration (“SBA”) loans and securities.

     Our return on average assets (“ROA”) was 1.37% for the three months ended March 31, 2005, compared with 1.42% for the three months ended March 31, 2004. Our return on average equity (“ROE”) was 17.79% for the three months ended March 31, 2005, compared to 18.45% for the three months ended March 31, 2004. The reduced ROA and ROE in 2005 primarily reflect lower securities sales in the first quarter of 2005.

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     Our efficiency ratio, which represents the ratio of total noninterest expense to the sum of net interest income and noninterest income, was comparable at 42.91% and 40.45% for the three months ended March 31, 2005 and 2004, respectively. The increase also primarily affects the reduced securities sales in the first quarter of 2005.

     Compared to the three months ended March 31, 2004, our interest income increased by $13.7 million, or 19.5%, to $84.0 million for the three months ended March 31, 2005, as a result of a $679.1 million increase in our average interest-earning assets primarily due to loan production. Our average loans outstanding were $4.51 billion for the three months ended March 31, 2005, compared with $3.84 billion for the three months ended March 31, 2004.

     As a financial institution, we are sensitive to fluctuations in market interest rates. As a result of the increases in market interest rates for the three months ended March 31, 2005, the yields on our loans and deposits have been increasing. Since the rate of the increase on loan yields was less than the rate of the increase on the cost of our deposits, our net interest margin, calculated on a tax equivalent basis, decreased from 3.74% to 3.72% for the three months ended March 31, 2005, when compared with the three months ended March 31, 2004.

     The ratio of allowance for loan losses was 1.32% at March 31, 2005, compared with 1.39% at December 31, 2004. The allowance for loan losses was $57.5 million at March 31, 2005, compared with $56.5 million at December 31, 2004. The increase in the allowance for loan losses reflects the growth in the loan portfolio and the increase in commercial loans during the first quarter of 2005. During the first quarter of 2005, the Bank continued its ongoing process of reviewing its loan portfolio by evaluating the loss factors and current economic conditions in light of its own historical loss experience, loan delinquency and classification in determining the adequate level of allowance for loan losses. In addition, the Bank experienced significantly lower net loan charge-offs during the first quarter of 2005, when compared with the net loan charge-offs for the first quarter of 2004. Accordingly, the Company provided $1.2 million for loan losses in the first quarter of 2005, compared with $2.2 million in the first quarter of 2004.

     Our noninterest income increased by 17.3% to $8.0 million for the three months ended March 31, 2005, compared with noninterest income of $6.9 million for the three months ended March 31, 2004. The Bank plans to continue to originate multifamily loans of which it intends to sell a portion. These loans will be classified as loans held for sale and are presented separately on the consolidated balance sheets. This increase resulted from: a) $3.8 million of gains on sales of multifamily loans in the first quarter of 2005, compared with no gains on sales of multifamily loan sales in the corresponding quarter of 2004; b) an increase of $479,000, or 25.6%, in commercial banking fees due to increased trade finance activity; and c) an increase of $573,000, or 112.1%, in gain on sale of SBA loans in the first quarter of 2005, compared with the first quarter of 2004. These gains were partially offset by a decrease in the gain on sale of securities from $3.9 million in the first quarter of 2004, compared with a gain on sale of securities of $609,000 in the first quarter of 2005.

     Noninterest expense was $27.2 million for the three months ended March 31, 2005, as compared to $22.8 million for the three months ended March 31, 2004. The overall increase primarily related to overall growth and Sarbanes-Oxley Act compliance costs. Personnel expenses increased to $14.7 million for the three months ended March 31, 2005, up from $12.9 million for the three months ended March 31, 2004, an increase of $1.8 million, or 14.1%. Occupancy expenses of $2.6 million are net of rental income of $2.0 million for the three months ended March 31, 2005. Occupancy expenses of $1.5 million are net of rental income of $1.5 million for the three months ended March 31, 2004. The increased occupancy expenses resulted from branch expansions. Professional fees and contracted services were $2.5 million for the three months ended March 31, 2005, compared with $1.5 million for the three months ended March 31, 2004. Included in noninterest expense is core deposit intangible amortization of $284,000 for the three months ended March 31, 2005, compared with $233,000 for the three months ended March 31, 2004. The core deposit intangible was recorded in connection with the acquisitions of Bank of Canton of California (“BCC”), the New York branch, and First Continental Bank (“FCB”). Miscellaneous expenses of $3.7 million for the three months ended March 31, 2005, decreased $54,000, or 1.43%, compared with $3.8 million for the three months ended March 31, 2004.

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TREND 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 as of the end of the specified periods:

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     We have grown our balance sheet at a compounded rate of 19.4% since 1998. In 2002, we acquired BCC, with assets of $1.55 billion, which accounts for the substantial increase in the assets that year. In 2003, we acquired FCB with adjusted assets of $383.4 million. Without these acquisitions, we would have grown our balance sheet at a compounded annualized rate of 12.8% since 1998.

     Our loans held in portfolio has grown at a compounded rate of 18.7% since 1998. Without the acquisitions of BCC and FCB, the growth rate would have been 15.1%, compounded annually.

     Our deposits have grown at a compounded rate of 20.9% since 1998. Without the acquisitions of BCC and FCB, the growth rate would have been 14.4%, compounded annually. Our core deposits have grown at a rate of 34.3% since becoming a commercial bank. Without the acquisitions of BCC and FCB, the growth rate would have been 30.4%, compounded annually.

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     Following is a table reflecting our asset quality since becoming a commercial bank as of the end of the specified periods:

     We have maintained credit quality by adhering to our credit underwriting criteria. The nonperforming loans at March 31, 2005, primarily consists of five nonperforming commercial real estate loans totaling $11.3 million, and three nonperforming construction loans of $4.6 million.

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

     Our net interest margin improvement from 1998 results from continuing balance sheet restructuring, as we have reduced the concentration in low yielding loans and increased core deposits. Our ROA has increased accordingly since 1998. When we acquired BCC, we blended our 4.02% margin with their 2.23% margin. BCC had a concentration of low interest yielding securities and high interest costing certificates of deposit, which caused compression in the margin. Through restructuring the BCC assets and deposits, we have improved our margin over time since the acquisition in 2002.

     The reduction in ROA and ROE for the first quarter of 2005 compared with the full year of 2004 reflects the reduction in securities gains from $12.7 million in the full year of 2004 to $609,000 in the first quarter of 2005. The efficiency ratio for the first quarter of 2005 increased accordingly.

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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 the Bank’s Tier I Leverage and Total Risk-Based Capital ratios since 1998. As of March 31, 2005, the Bank met the “well capitalized” requirements under these guidelines.

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     We have declared dividends since 2000 and plan to continue dividend payments for the next year. The chart below presents our dividend payments restated to reflect the effect of the two-for-one stock splits of April 12, 2005, April 8, 2003, and April 11, 2001, on a per share basis and in total since 1998.

CORPORATE DEVELOPMENTS

     In April 2005, the Company announced that it opened two representative offices in Shenzhen, China and Taipei, Taiwan, to further strengthen its ability to offer trade finance banking services to its customers. Working in conjunction with the Hong Kong branch, the new offices will enable the Bank’s ability to provide a superior level of personalized service to customers with business interests in the Pacific Rim.

CRITICAL ACCOUNTING POLICIES

     Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and follow general industry practices. The most significant accounting policies followed by the Company are presented in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC. These policies, along with the disclosures presented in the other financial statement notes and in this discussion and analysis, provide information on how significant assets and

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liabilities are valued in the financial statements and how those values are determined. The critical accounting policies include estimation techniques and judgments that are based on the relevant variables and the Company’s assumptions.

     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 GAAP requires management to make certain estimates and assumptions which 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 represents a reserve for probable credit losses inherent in the commercial and consumer loan portfolios at the balance sheet date. The methodology for calculating the allowance involves evaluation of the Company’s historical losses and management judgment of inherent losses in these portfolios, as well as an evaluation of impaired loans.

     The Company uses a risk grading system to determine the credit quality of its loans. Loans are reviewed to determine the obligor’s ability to fulfill its financial obligations to the Company. The loss factors are applied to particular loan segments according to the severity of classification or grade. Management believes the current risk grades assigned to loans are appropriate.

     Whenever possible, the Company uses its own historical loss experience or independent verifiable data to estimate the loss factors. Additionally, management evaluates the inherent risks in the respective loan segment in determining the appropriate loss factor. The application of these loss factors establishes the amount of the allowance for credit losses applicable to the particular segments. Management’s judgment is also applied when considering uncertainties based on current macroeconomic conditions affecting the Company’s existing portfolios.

     Furthermore, each impaired loan is evaluated individually. The evaluation includes an assessment of the account’s collateral, marketability or other sources of repayment to establish an appropriate reserve.

     The Company has and will continue to refine its allowance methodology as it improves its processes and gathers additional data on customers. For the three months ended March 31, 2005, the Company reduced the loan loss factors on the commercial real estate portfolio as a result of the Company completing the review process of commercial real estate credits over $1.0 million. In doing so, the Company determined that the inherent volatility risk in the portfolio was decreased due to stronger identification, administration and action plan implementation on credits in the commercial real estate portfolio.

     Included in other liabilities is approximately $3.9 million related to loan loss allowance for unfunded loan commitments at March 31, 2005, and December 31, 2004. Excluding unfunded commitments, the Company’s allowance for loan losses was $57.5 million, or 1.32% of loans held in portfolio, at March 31, 2005, compared to $56.5 million, or 1.39% of loans held in portfolio, at December 31, 2004. In management’s judgment, the estimate for allowance for loan losses is adequate.

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     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. Losses not anticipated or greater than anticipated could result if the Company sold one of these assets, subsequently discovering that its estimate of fair value had been too high. 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. Declines in fair value deemed other-than-temporary that would result in a write-down of a security, if any, are reported in noninterest expense.

     Goodwill and Other Intangible Assets: The Company establishes goodwill and other intangible assets, including core deposit intangibles and capitalized servicing rights, by estimating the 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 result from the sale of multifamily loans and SBA loans with the servicing rights retained, and the securitization and retention of residential mortgage (one to four family) and multifamily loans with the servicing rights retained. 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 is based on various assumptions including prepayment speeds and discount rates.

     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.

     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 which 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 year, 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 1 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, as disclosed in Note 1 to the Consolidated Financial Statements, would have been recognized.

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Recent Accounting Pronouncements

     Note 2 to the Consolidated Financial Statements discusses new accounting policies adopted by the Company during the financial periods presented and the expected impact of accounting policies issued or proposed, but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects the Company’s financial statements, the impacts are discussed in the applicable sections of this financial review and Notes to the Consolidated Financial Statements.

     Other-Than-Temporary Impairment and Its Application to Certain Investments. In March 2004, the Financial Accounting Standards Board (“FASB”) approved the consensus reached on the Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF Issue No. 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”, and for equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method under APB Opinion No. 18 and related interpretations (hereinafter referred to as “cost method investments”).

     Certain disclosure requirements regarding investments accounted for under SFAS No. 115 and SFAS No. 124 are effective for annual financial statements for fiscal years ending after December 31, 2003. These currently effective disclosure requirements have been adopted by the Company and did not have a material impact on the financial condition or operating results of the Company. Additional disclosure requirements regarding cost method investments are effective for annual periods ending after June 15, 2004. The adoption of these disclosure requirements did not have a material impact on the financial condition or operating results of the Company.

     In September 2004, the FASB issued a final FASB Staff Position (“FSP”), FSP EITF 03-1-1, delaying the effective date of the measurement and recognition guidance indefinitely. Excluding the deferred guidance, the adoption of EITF No. 03-01 did not have a material impact on the financial condition or operating results of the Company.

     Accounting for Stock-Based Compensation. On December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic value method as prescribed under APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and requires that such transactions be accounted for using a fair value-based method. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123R had not been scheduled to become effective for the interim and annual periods beginning after June 15, 2005. However, in April 2005, the Securities and Exchange Commission amended Rule 4-01(a) of Regulation S-X to amend the date for compliance with SFAS No. 123R, so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with SFAS No. 123R beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Thus, SFAS No. 123R will not become effective for the Company until January 1, 2006.

     SFAS No. 123R may be adopted using one of two methods: (1) A “modified perspective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date; (2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The adoption of SFAS No. 123R may have a material impact on the Company’s financial position and results of operation.

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     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 loans or debt securities acquired in a transfer, 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 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.

     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 adoption of SOP 03-3 did not have a material impact on the financial condition or operating results of the Company.

RESULTS OF OPERATIONS

     General. Our main source of income is net interest income, which is the difference between our interest income (generally interest paid to us by borrowers and paid on our investments) and our interest expense (generally the interest we paid to depositors as well as interest we paid on borrowings, such as loans from the Federal Home Loan Bank). Changes in the average amount of interest-earning assets we hold (generally loans and investments) as well as in interest-bearing liabilities we incur (generally deposits and other borrowings) during a period affect the amount of net interest income we earn. Changes in the interest rates earned on loans and securities and paid on deposits and other borrowings also affect our net interest income.

     We also earn noninterest income, which is generally made up of commercial banking fees and other fees paid by our customers, and gains on sales of loans and securities. In addition to interest expense, our income is impacted by noninterest expenses (primarily our personnel, occupancy and professional fees), and our provision for loan losses. Other factors beyond our control, such as economic and business conditions, competition from other financial institutions, market fluctuations, changes in tax law and government regulation of financial institutions may also significantly affect our results of operations.

     The Bank offers commercial deposit facilities and commercial loans. Included in the loans offered are nonresidential real estate loans, commercial business loans, multifamily real estate loans, construction loans, and small business loans. Through the consumer business division, the Bank offers consumer deposit products including savings accounts, checking accounts and time deposits. The consumer division also originates residential mortgage (one to four family) loans and home equity lines of credit.

     The Bank originates commercial real estate loans for primary users, as well as for investors. The Bank also originates multifamily mortgages, which are typically secured by five- to 50-unit residential buildings, within its primary market areas. Loans secured by residential buildings in excess of 50 units are underwritten pursuant to the Bank’s underwriting standards for commercial nonresidential real estate loans. Both types of commercial real estate loans are generally adjustable-rate or fixed-rate for an initial period of time and then become adjustable-rate loans. Multifamily mortgages are generally amortized over 30 years and have balloon payments between 15 to 25 years. Commercial nonresidential real estate loans are generally amortized over 25 years and have balloon payments between seven to ten years.

     Construction loans are originated primarily for the construction of entry-level and first-time move-up housing within California or mixed-use properties. The Bank focuses on mid-tier builders. Construction loans are generally prime based, are generally written for a one-year term and may have up to a one-year renewal option.

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     The Bank provides commercial business loans to customers for working capital purposes for accounts receivable and inventory, as well as loans to finance equipment. In addition, the Bank offers small business loans, for which 75% of the principal balance is generally guaranteed by the U.S. Small Business Administration.

     The Bank originates fixed-rate and adjustable-rate residential mortgage (one to four family) loans within its primary market area. These loans are originated through its retail branches. Such mortgage loans are originated primarily for owner-occupants. In addition to these residential mortgage loans, the Bank offers home equity loans.

     The Bank originates home equity lines of credit secured by residential real estate. These lines generally consist of floating rate loans tied to the prime rate.

Operating Data and Ratios

     Following is a table of selected operating metrics for the three months ended March 31, 2005 and 2004 (dollars in thousands):

     The consolidated net income of the Company for the three months ended March 31, 2005, increased by $2.0 million, or 10.0%, to $21.8 million, compared to $19.8 million for the three months ended March 31, 2004. The annualized return on average equity (“ROE”) and average assets (“ROA”) ratios for the three months ended March 31, 2005, were 17.79% and 1.37%, respectively. These amounts compare with annualized ROE and ROA ratios of 18.45% and 1.42%, respectively, for the three months ended March 31, 2004. These ratios decreased primarily due to decreased securities sales in the first quarter of 2005, compared with the first quarter of 2004. The efficiency ratio was 42.91% for the three months ended March 31, 2005, compared with 40.45% for the three months ended March 31, 2004. The efficiency ratio increase also relates to the securities sales referenced above. Diluted earnings per common share on a post-split basis were $0.23 for the three months ended March 31, 2005, compared with $0.21 for the three months ended March 31, 2004.

     Following is a table of selected operating metrics for the three months ended March 31, 2004 and 2003 (dollars in thousands):

     The consolidated net income of the Company during the three months ended March 31, 2004, increased by $5.9 million, or 42.3%, to $19.8 million, compared to $13.9 million for the three months ended March 31, 2003. The annualized ROE and ROA ratios for the three months ended March 31, 2004, were 18.45% and 1.42%, respectively. These amounts compare with annualized ROE and ROA ratios of 19.22% and 1.16%, respectively, for the three months ended March 31, 2003. ROA improved primarily due to higher net income. ROE primarily decreased due to higher average equity in the current quarter. The efficiency ratio was 40.45% for the three months ended March 31, 2004, compared with 46.03% for the corresponding period of the preceding year. Diluted earnings per common share on a post-split basis were $0.21 for the three months ended March 31, 2004, compared with $0.16 for the three months ended March 31, 2003.

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Net Interest Income and Net Interest Margin

     Following is a table of selected ratios that reflect the changes in net interest income for the Company for the three months ended March 31, 2005 and 2004 (dollars in thousands):

     Net interest income before provision for loan losses of $55.4 million for the three months ended March 31, 2005, represented a $5.8 million, or 11.8%, increase over net interest income of $49.5 million for the three months ended March 31, 2004. The increase in net interest income was primarily due to a $679.1 million increase in the average balance of interest earning assets, which resulted primarily from organic loan growth. The average cost of deposits increased 39 basis points from 1.30% for the three months ended March 31, 2004, to 1.69% for the three months ended March 31, 2005, as a result of the increase in market interest rates during the past twelve months. This was offset by a 39 basis point increase in average loan yields from 5.51% for the three months ended March 31, 2004, to 5.90% for the three months ended March 31, 2005. Loan yield reflects repricing of adjustable-rate loans resulting from increases in market interest rate indices. The securities yield increased from 4.38% for the three months ended March 31, 2004, to 4.44% for the three months ended March 31, 2005. The increase in the securities yield reflects higher-yielding securities due to the higher market interest rate environment.

     The net interest margin, calculated on a tax equivalent basis, was 3.72% for the three months ended March 31, 2005, as compared to 3.74% for the three months ended March 31, 2004. 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 decrease in net interest margin reflects the increased cost of money market accounts and certificates of deposit resulting from higher market interest rates, partially offset by the favorable impact of growing higher yielding commercial loans and noninterest-bearing deposits and increased securities yields.

     Following is a table of selected ratios that reflects the dynamics of the net interest income for the Company for the three months ended March 31, 2004 and 2003 (dollars in thousands):

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     Net interest income before provision for loan losses of $49.5 million for the three months ended March 31, 2004, represented a $10.2 million, or 26.1%, increase over net interest income of $39.3 million for the three months ended March 31, 2003. The increase in net interest income reflects the growth in interest earning assets, primarily in the Company’s loan portfolio, coupled with a 26 basis point improvement in the net interest margin. The average cost of deposits decreased 49 basis points from 1.79% for the three months ended March 31, 2003, to 1.30% for the three months ended March 31, 2004. This savings was partially offset by a 25 basis point decrease in average loan yields from 5.76% for the three months ended March 31, 2003, to 5.51% for the three months ended March 31, 2004. The decline in all areas reflects the decline in the overall rate environment from early 2003. Loan yield reflects the 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. The securities yield decreased from 4.83% for the three months ended March 31, 2003, to 4.38% for the three months ended March 31, 2004. The decline in the securities yield reflects the prepayments of higher-yielding securities and their replacement with lower-yielding securities due to the low market interest rate environment, and the sale of higher-yielding long-term fixed-rate securities.

     The net interest margin, calculated on a tax equivalent basis, was 3.74% for the three months ended March 31, 2004, as compared to 3.48% for the three months ended March 31, 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.

     The following is a table reflecting selected average balances of the Company’s assets and liabilities for the three months ended March 31, 2005 and 2004 (dollars in thousands):

     The following table presents the composition of the Bank’s average loan portfolio, including loans held for sale, for the three months ended March 31, 2005 and 2004 (dollars in thousands):

     The following table presents components of the Bank’s average outstanding deposits for the three months ended March 31, 2005 and 2004 (dollars in thousands):

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     The increase of $679.1 million on average earning assets for the three months ended March 31, 2005 resulted primarily from organic commercial loan growth. Average outstanding loans increased by $672.2 million for the three months ended March 31, 2005 from the same period last year as a result of the Bank’s continued focus on commercial lending activities. Average commercial loan balances increased $499.2 million for the three months ended March 31, 2005 as compared to the corresponding period of 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 three months ended March 31, 2005 increased slightly from the same period in 2004. New loan commitments of $801.6 million for the three months ended March 31, 2005 were comprised of $748.4 million in commercial and $53.2 million in consumer commitments.

     Average securities were $1.51 billion for the three months ended March 31, 2005, were down from $1.59 billion for the three months ended March 31, 2004, a decrease of $77.8 million, or 4.9%. Securities prepayments and maturities were partially replaced with new securities purchases. The general level of rates increased; however, there were still prepayments and maturities. The long-term goal is to reduce the securities portfolio to a range of 10% to 15% of the balance sheet.

     Average total deposits increased $681.4 million to $5.22 billion for the three months ended March 31, 2005, up from $4.54 billion for the three months ended March 31, 2004, a result of the Company’s ongoing focus on the generation of commercial and consumer demand deposits. Average interest-bearing deposits increased to $4.80 billion for the three months ended March 31, 2005, up from $4.20 billion for the three months ended March 31, 2004, and average noninterest-bearing deposits increased to $418.6 million for the three months ended March 31, 2005, up from $337.1 million for the three months ended March 31, 2004.

     The following is a table reflecting selected average balances of the Company’s assets and liabilities for the three months ended March 31, 2004 and 2003 (dollars in thousands):

     The following table presents the composition of the Bank’s average loan portfolio, including loans held for sale, for the three months ended March 31, 2004 and 2003 (dollars in thousands):

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     The following table presents components of the Bank’s average outstanding deposits for the three months ended March 31, 2004 and 2003 (dollars in thousands):

     Average outstanding loans increased to $3.84 billion for the three months ended March 31, 2004, from $3.07 billion for the three months ended March 31, 2003, an increase of $744.3 million, or 25.2%, as a result of the Bank’s continued focus on commercial lending activities, and the FCB acquisition. Average commercial loan balances increased $806.1 million to $3.51 billion for the three months ended March 31, 2004, up from $2.71 billion for the three months ended March 31, 2003. Average consumer loans decreased $31.8 million to $328.2 million for the three months ended March 31, 2004, down from $360.0 million for the three months ended March 31, 2003, primarily due to the Bank’s securitization activity in the residential mortgage portfolio in the fourth quarter of 2004. New loan commitments of $503.4 million for the three months ended March 31, 2004, comprised $456.8 million in commercial and $46.6 million in consumer commitments.

     Average securities increased slightly to $1.59 billion for the three months ended March 31, 2004, up from $1.54 billion for the three months ended March 31, 2003, an increase of $47.4 million, or 3.1%. This increase was primarily due to purchases that occurred early in the quarter. Securities runoff which accelerated with the lower market interest rate environment was substantially replaced with new securities purchases. During the first three months of 2004, the Company also sold securities with an aggregate principal balance of $382.5 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 total deposits increased $543.3 million to $4.54 billion for the three months ended March 31, 2004, up from $3.99 billion three months ended March 31, 2003, a result of the Company’s ongoing focus on the generation of commercial and consumer demand deposits and the FCB acquisition. Average interest-bearing deposits increased to $4.20 billion for the three months ended March 31, 2004, up from $3.74 billion for the three months ended March 31, 2003, and average noninterest-bearing deposits increased to $337.1 million for the three months ended March 31, 2004, up from $256.6 million for the three months ended March 31, 2003.

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     The following table presents the distribution of our average assets and liabilities, and stockholders’ equity, as well as the total dollar amounts of interest income from average interest-earning assets, and the resultant yields and dollar amounts of interest expense of average interest-bearing liabilities, expressed both in dollars and rates for the three months ended March 31, 2005, 2004 and 2003 (dollars in thousands):