CENTER FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

Commission file number: 000-50050

Center Financial Corporation

(Exact name of Registrant as specified in its charter)


California		52-2380548
(State of Incorporation)		(IRS Employer Identification No)

3435 Wilshire Boulevard, Suite 700, Los Angeles, California 90010

(Address of principal executive offices)

(213) 251-2222

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

As of July 31, 2004, there were 16,144,456 outstanding shares of the issuer’s Common Stock with no par value.

FORM 10-Q

Index



PART I - FINANCIAL INFORMATION		3

ITEM 1.	INTERIM CONSOLIDATED FINANCIAL STATEMENTS	3

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS		8

ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17

FORWARD-LOOKING STATEMENTS		17

SUMMARY OF FINANCIAL DATA		18

EARNINGS PERFORMANCE ANALYSIS		19

FINANCIAL CONDITION ANALYSIS		27

LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT		38

CAPITAL RESOURCES		40

ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41

ITEM 4:	CONTROLS AND PROCEDURES	41

PART II - OTHER INFORMATION		42

ITEM 1:	LEGAL PROCEEDINGS	42

ITEM 2:	CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES	42

ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	42

ITEM 4:	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	43

ITEM 5:	OTHER INFORMATION	43

ITEM 6:	EXHIBITS AND REPORTS ON FORM 8-K	44

SIGNATURES		45

PART I - FINANCIAL INFORMATION

Item 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2004 AND DECEMBER 31, 2003 (Unaudited)


	6/30/2004			12/31/2003
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	65,539		$	76,926
Federal funds sold		46,010			41,635
Money market funds and interest-bearing deposits in other banks		40,000			22,400

Cash and cash equivalents		151,549			140,961

Securities available for sale, at fair value		103,414			110,126
Securities held to maturity, at amortized cost (fair value of $12,866 as of June 30, 2004 and $15,656 as of December 31, 2003)		12,856			15,390
Federal Home Loan Bank and other equity stock, at cost		3,826			2,578
Loans, net of allowance for loan losses of $10,044 as for June 30, 2004 and $8,804 as of December 31, 2003		848,769			692,154
Loans held for sale, at the lower of cost or market		20,411			24,854
Premises and equipment, net		11,160			11,063
Customers’ liability on acceptances		5,534			4,492
Accrued interest receivable		3,515			3,085
Deferred income taxes, net		4,142			3,033
Investments in affordable housing partnerships		3,944			3,665
Cash surrender value of life insurance		10,238			10,034
Goodwill		1,253			—
Intangible assets		453			—
Other assets		4,913			5,931

Total	$	1,185,977		$	1,027,366

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing		330,672			268,534
Interest-bearing		731,237			599,331

Total deposits		1,061,909			867,865
Acceptances outstanding		5,534			4,492
Accrued interest payable		2,742			2,431
Other borrowed funds		11,726			50,671
Long-term subordinated debentures		18,557			18,557
Accrued expenses and other liabilities		3,213			5,089

Total liabilities		1,103,681			949,105
Commitments and Contingencies (Note 11)
Shareholders’ Equity
Serial preferred stock, no par value; authorized 10,000,000 shares; issued and outstanding, none		—			—
Common stock, no par value; authorized 40,000,000 shares; issued and outstanding, 16,119,751 as of June 30, 2004 and 16,048,520 as of December 31, 2003		63,742			63,438
Retained earnings		19,445			14,186
Accumulated other comprehensive (loss) income, net of tax		(891	)		637

Total shareholders’ equity		82,296			78,261

Total	$	1,185,977		$	1,027,366

See accompanying notes to consolidated interim financial statements.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (Unaudited)


	Three Months Ended					Six Months Ended
	2004			2003		2004			2003
	(Dollars in thousands, except per share data)
Interest and Dividend Income:
Interest and fees on loans	$	12,029		$	9,151	$	23,404		$	17,829
Interest on federal funds sold		102			118		163			203
Interest on taxable investment securities		754			995		1,652			2,269
Interest on tax-advantaged investment securities		131			174		303			377
Dividends on equity stock		37			18		62			24
Money market funds and interest-earning deposits		71			54		102			140

Total interest and dividend income		13,124			10,510		25,686			20,842
Interest Expense:
Interest on deposits		3,312			2,746		6,133			5,585
Interest on borrowed funds		101			127		270			254
Interest on long-term subordinated debenture		182			—		365			—

Total interest expense		3,595			2,873		6,768			5,839

Net interest income before provision for loan losses		9,529			7,637		18,918			15,003
Provision for loan losses		600			550		1,450			950

Net interest income after provision for loan losses		8,929			7,087		17,468			14,053
Noninterest Income:
Customer service fees		1,994			1,743		3,910			3,355
Fee income from trade finance transactions		915			640		1,618			1,275
Wire transfer fees		213			177		398			331
Gain on sale of loans		890			937		1,267			937
Net (loss) gain on sale of securities available for sale		(6	)		93		(6	)		340
Loan service fees		458			339		1,009			624
Other income		426			509		779			695

Total noninterest income		4,890			4,438		8,975			7,557
Noninterest Expense:
Salaries and employee benefits		3,675			3,435		7,357			6,607
Occupancy		672			504		1,209			943
Furniture, fixtures, and equipment		329			318		650			641
Data processing		506			443		974			834
Professional service fees		1,161			403		1,305			665
Business promotion and advertising		604			423		925			854
Stationery and supplies		127			176		233			304
Telecommunications		157			110		283			237
Postage and courier service		158			130		287			251
Security service		167			151		322			294
Impairment loss of securities available for sale		—			—		540			—
Other operating expenses		1,021			538		1,698			1,079

Total noninterest expense		8,577			6,631		15,783			12,709

Income before income tax provision		5,242			4,894		10,660			8,901
Income tax provision		2,043			1,815		4,114			3,297

Net income	$	3,199		$	3,079	$	6,546		$	5,604

Earnings per share:
Basic*	$	0.20		$	0.20	$	0.41		$	0.36

Diluted*	$	0.20		$	0.19	$	0.40		$	0.35

See accompanying notes to consolidated interim financial statements.

*	Adjusted for two for one stock split effective February 17, 2004.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2004 AND YEAR ENDED DECEMBER 31, 2003 (Unaudited)


	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Number of Shares	Amount		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	(In thousands)
BALANCE, JANUARY 1, 2003	14,246	$	51,831	$	11,704		$	1,671		$	65,206

Comprehensive income
Net income					11,652						11,652
Other comprehensive income
Change in unrealized gain, net of tax (benefit) expense of ($909) and $158 on:
Securities available for sale								(1,253	)
Interest rate swap								219			(1,034	)

Comprehensive income											10,618

Stock options exercised	652		1,836								1,836
Tax benefit from stock options exercised			1,245								1,245
Stock dividend	1,150		8,526		(8,526	)
Cash dividend ($0.04* per share)					(641	)					(641	)

Cash paid for fractional shares					(3	)					(3	)

BALANCE, DECEMBER 31, 2003	16,048		63,438		14,186			637			78,261

Comprehensive income
Net income					6,546						6,546
Other comprehensive income
Change in unrealized gain, net of tax benefit of $(498) and $(611) on:
Securities available for sale								(686	)
Interest rate swap								(842	)		(1,528	)

Comprehensive income											5,018

Stock options exercised	72		304								304
Cash dividend ($0.04* per share)					(1,287	)					(1,287	)

BALANCE, JUNE 30, 2004	16,120	$	63,742	$	19,445		$	(891	)	$	82,296


See accompanying notes to consolidated financial statements.		(Continued)

*	Adjusted for two for one stock split effective February 17, 2004.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2004 AND YEAR ENDED DECEMBER 31, 2003 (Unaudited)

Disclosures of reclassification amounts for the six months ended June 30, 2004 and for the year ended December 31, 2003:


	6/30/2004			12/31/2003
	(Dollars in thousands)
Unrealized gain on securities available for sale:
Unrealized holding gain arising during period, net of tax benefit of $(498) in 2004 and $(770) in 2003	$	(686	)	$	(1,062	)
Less reclassification adjustments for gain included in net income, net of tax expense of $0 in 2004 and $139 in 2003		—			(191	)

Net change in unrealized gain on securities available for sale, net of tax benefit of $(498) in 2004 and $(909) in 2003		(686	)		(1,253	)
Unrealized gain on interest rate swap:
Unrealized holding gain arising during period, net of tax (benefit) expense of $(611) in 2004 and $226 in 2003		(842	)		312
Less reclassification adjustments for gain included in net income, net of tax expense of $0 in 2004 and $68 in 2003		—			(93	)

Net change in unrealized gain on interest rate swap, net of tax (benefit) expense of $(611) in 2004 and $158 in 2003		(842	)		219

Change in unrealized gain on securities available for sale and interest rate swap, net of tax	$	(1,528	)	$	(1,034	)


See accompanying notes to consolidated financial statements.		(Concluded)

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (Unaudited)


	06/30/2004			06/30/2003
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	6,546		$	5,604
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		672			628
Amortization of premium, net of accretion of discount, on securities available for sale and held to maturity		288			674
Provision for loan losses		1,450			950
Impairment of securities available for sale		540			—
Net gain on disposal of premises and equipment		99			—
Net (loss) gain on sale of securities available for sale		6			(340	)
Originations of SBA loans held for sale		(10,717	)		(16,214	)
Gain on sale of SBA loans		(1,267	)		(937	)
Proceeds from sale of SBA loans		22,113			14,835
Federal Home Loan Bank stock dividend		(32	)		(19	)
Increase in accrued interest receivable		(409	)		(36	)
Net increase in cash surrender value of life insurance policy		(204	)		—
Increase in other assets		(413	)		(487	)
Increase in accrued interest payable		272			29
(Decrease) increase in accrued expenses and other liabilities		(2,536	)		2,520

Net cash provided by operating activities		16,408			7,207

Cash flow from investing activities:
Purchase of securities available for sale		(9,477	)		(47,157	)
Proceeds from principal repayment, matured, or called securities available for sale		14,066			26,802
Proceeds from sale of securities available for sale		119			18,340
Purchase of securities held to maturity		—			(300	)
Proceeds from matured, called or principal repayment on securities held to maturity		2,521			1,451
Purchase of Federal Home Loan Bank and other equity stock		(1,216	)		(91	)
Net increase in loans		(156,208	)		(78,750	)
Proceeds from recoveries of loans previously charged off		468			285
Purchases of premises and equipment		(862	)		(1,081	)
Cash acquired from purchase of Chicago branch		3,848			—
Net increase in investments in affordable housing partnerships		(279	)		(117	)

Net cash used in investing activities		(147,020	)		(80,618	)

Cash flow from financing activities:
Net increase in deposits		181,128			67,100
Net decrease in other borrowed funds		(38,945	)		(409	)
Proceeds from stock options exercised		304			508
Payment of cash dividend		(1,287	)		(3	)

Net cash provided by financing activities		141,200			67,196

Net increase (decrease) in cash and cash equivalents		10,588			(6,215	)
Cash and cash equivalents, beginning of year		140,961			114,377

Cash and cash equivalents, end of year	$	151,549		$	108,162

Supplemental disclosure of cash flow information:
Interest paid	$	6,457		$	5,810
Income taxes paid	$	5,217		$	2,594
Supplemental schedule of noncash investing, and financing activities:
Loans made to facilitate the sale of other real estate owned	$	—		$	—
Transfer of retained earnings to common stock for stock dividend	$	—		$	8,526
Purchase of Chicago Branch				$	—
Fair value of asset acquired	$	12,363		$	—
Fair value of liabilities assumed	$	13,616		$	—
Purchase price of acquisition	$	—		$	—
Goodwill created	$	1,253		$	—

See accompanying notes to consolidated financial statements.

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. THE BUSINESS OF CENTER FINANCIAL CORPORATION

Center Financial Corporation (“Center Financial”) was incorporated on April 19, 2000 as a California corporation initially under the name of “Center Financial Services” to be a subsidiary of Center Bank (the “Bank”), and was subsequently renamed Center Financial Corporation to become the bank holding company for the Bank. Center Financial acquired all of the issued and outstanding shares of the Bank in October 2002. Currently, Center Financial’s direct subsidiaries include the Bank and Center Capital Trust I (discussed below) and Center Financial exists primarily for the purpose of holding the stock of the Bank and of its other subsidiaries. Center Financial, the Bank, Center Capital Trust I and the subsidiary of the Bank (“CB Capital Trust”) discussed below, are collectively referred to herein as the “Company.”

The Bank is a California state-chartered and FDIC-insured financial institution, which was incorporated in 1985 and commenced operations in March 1986. The Bank changed its name from California Center Bank to Center Bank in December 2002. The Bank’s headquarters is located at 3435 Wilshire Boulevard, Suite 700, Los Angeles, California 90010. The Bank is a community bank providing comprehensive financial services for small to medium sized business owners, mostly in Southern California. The Bank specializes in commercial loans, which are mostly secured by real property, to multi-ethnic and small business customers. In addition, the Bank is a Preferred Lender of Small Business Administration (“SBA”) loans and provides trade finance loans and other international banking products. The Bank’s primary market is the greater Los Angeles metropolitan area, including Orange, San Bernardino, and San Diego counties, primarily focused in areas with high concentrations of Korean-Americans. The Bank currently has fourteen full-service branch offices located in Los Angeles, Orange, San Bernardino, and San Diego counties. The Bank opened all 13 branches as de novo branches. On April 26, 2004, the Company completed its acquisition of the Korea Exchange Bank (KEB) Chicago branch, the Bank’s first out-of-state branch, which will focus on the Korean-American niche market in Chicago. The Company assumed $12.9 million in FDIC insured deposits and purchased $8.0 million in loans from the KEB Chicago branch. The Bank also operates five Loan Production Offices (“LPO’s”) in Phoenix, Seattle, Denver, Washington D.C. and Las Vegas. The Company opened its fifth LPO in Nevada in October 2003.

Additionally, CB Capital Trust, a Maryland real estate investment trust, was formed as a subsidiary of the Bank in August 2002 with the primary business purpose of investing in the Bank’s real estate-related assets and thereby ultimately reducing the Company’s state taxes and thereby increasing net earnings, although it is currently uncertain whether any such tax savings will be available. The Company may use CB Capital Trust as a vehicle to raise additional capital in the future. CB Capital Trust was capitalized in September 2002, whereby the Bank exchanged real estate related assets for 100% of the common stock of CB Capital Trust.

In December 2003, the Company formed a wholly owned subsidiary, Center Capital Trust I, a Delaware statutory business trust, for the exclusive purpose of issuing and selling trust preferred securities.

Center Financial’s principal source of income is currently dividends from the Bank, but Center Financial intends to explore supplemental sources of income in the future. The expenditures of Center Financial, including legal and accounting professional fees, and Nasdaq listing fees, have been and will generally be paid from dividends paid to Center Financial by the Bank.

2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Center Financial, the Bank, and CB Capital Trust. Intercompany transactions and accounts have been eliminated in consolidation. Center Capital Trust I is not consolidated as disclosed in Note 6.

The interim consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for unaudited financial statements. The information furnished in these interim statements reflects all adjustments which are, in the opinion of Management, necessary for the fair statement of results for the periods presented. All adjustments are of a normal and recurring nature. Results for the three and six months ended June 30, 2004 are not necessarily indicative of the results which may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.

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

3. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies are fully described in Note 2 in Center Financial’s Annual Report on Form 10-K and there have been no material changes noted.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN No. 46”), an interpretation of Accounting Research Bulletin No. 51. FIN No. 46, which was revised in December 2003, requires that variable interest entities be consolidated by a company if that company is subject to a majority of expected loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s expected residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable interest. The consolidation requirements of FIN No. 46 applied immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after December 15, 2003. The Company adopted the consolidation requirements of FIN No. 46 effective December 31, 2003. As previously reported, the adoption of FIN No. 46 primarily resulted in the reclassification of certain liabilities due to the deconsolidation of statutory business trusts previously consolidated by the Company. FIN No. 46 had no effect on reported net income and cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 that relate to SFAS No. 133 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. Specifically, this Statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying instrument to conform it to language used in FIN No. 45, and (4) amends certain other existing pronouncements. Such changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of these instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for public companies at the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for differences between contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased loans or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and debt securities acquired after December 31, 2004. Management does not expect the adoption of this statement to have a material impact on the Company’s financial position, results of operations, or cash flows.

In March 2004, the Emerging Issues Task Force (EITF) reached consensus on the guidance provided in EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1) as applicable to debt and equity securities that are within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and equity securities that are accounted for using the cost method specified in Accounting Policy Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock. An investment is impaired if the fair value of the investment is less than its cost. EITF 03-1 outlines that an impairment would be considered other-than-temporary unless: a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of

the investment, and b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Although not presumptive, a pattern of selling investments prior to the forecasted recovery of fair value may call into question the investor’s intent. In addition, the severity and duration of the impairment should also be considered in determining whether the impairment is other-than-temporary. This new guidance for determining whether impairment is other-than-temporary is effective for reporting periods beginning after June 15, 2004. Adoption of this standard may cause the Company to recognize impairment losses in the Consolidated Statements of Operations which would not have been recognized under the current guidance or to recognize such losses in earlier periods, especially those due to increases in interest rates. Since fluctuations in the fair value for available-for-sale securities are already recorded in Accumulated Other Comprehensive Income, adoption of this standard is not expected to have a significant impact on stockholders’ equity.

5. OTHER BORROWED FUNDS

The Company borrows funds from the Federal Home Loan Bank and the Treasury, Tax, and Loan Investment Program, which is administered by the Federal Reserve Bank. Borrowed funds totaled $11.7 million and $50.7 million at June 30, 2004 and December 31, 2003, respectively. Interest expense on total borrowed funds was $270,000 for the six months ended June 30, 2004, compared to $254,000 for the six months ended 2003, reflecting average interest rates of 2.18%, and 3.19%, respectively.

As of June 30, 2004, borrowed funds from the Federal Home Loan Bank of San Francisco with note original terms from 1 year to 15 years amounted to $9.5 million. Notes are amortizing at predetermined schedules over the life of notes. The Company has pledged government agencies available for sale securities of $6.0 million at June 30, 2004. The Company also pledged commercial and multifamily loans totaling $163.0 million at June 30, 2004 for current and future FHLB borrowings. Total interest expense on the notes was $265,000 and $249,000 for the six months ended June 30, 2004 and 2003, reflecting average interest rates of 2.27% and 3.38%, respectively.

Borrowings obtained from the Treasury, Tax, and Loan Investment Program mature within a month from the transaction date. Under the program, the Company receives funds from the U.S. Treasury Department in the form of open-ended notes, up to a total of $2.2 million. The Company has pledged mortgage-backed securities held-to-maturity with a total carrying value of $3.4 million at June 30, 2004 as collateral to participate in the program. The total borrowed amount under the program outstanding at June 30, 2004 was $2.0 million. No balance was outstanding at December 31, 2003. Interest expense on notes was $4,500 and $5,000 for the six months ended June 30, 2004 and 2003, respectively, reflecting average interest rates of 0.76% and 2.13% respectively.

6. LONG-TERM SUBORDINATED DEBENTURE

The Company established Center Capital Trust I in December 2003 (the “Trust”) as a statutory business trust, which is a wholly owned subsidiary of the Company. In the private placement transaction, the Trust issued $18 million of floating rate (3-month LIBOR plus 2.85%) capital securities representing undivided preferred beneficial interests in the assets of the Trust. The Company is the owner of all the beneficial interests represented by the common securities of the Trust. The purpose of issuing the capital securities was to provide the Company with a cost-effective means of obtaining Tier I Capital for regulatory purposes. Effective December 31, 2003, as a consequence of adopting the provisions of FIN No. 46, the Trust is no longer being consolidated into the accounts of the Company. Long term subordinated debt represents liabilities of the Company to the Trust.

7. EARNINGS PER SHARE

The actual number of shares outstanding at June 30, 2004, was 16,119,751. Basic earnings per share is calculated on the basis of the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated on the basis of weighted average shares outstanding during the period plus shares issuable upon assumed exercise of outstanding common stock options.

The following table sets forth the Company’s earnings per share calculation for the three and six months ended June 30, 2004 and 2003:


	For the Three Months Ended June 30,
	2004					2003
	(In thousands, except earnings per share)
	Net Income		Average Number of Shares	Per Share Amounts		Net Income		Average Number of Shares	Per Share Amounts
Basic earnings per share	$	3,199	16,092	$	0.20	$	3,079	15,710	$	0.20
Effect of dilutive securities:
Stock options		—	517	$	—		—	429	$	(0.01	)

Diluted earnings per share*	$	3,199	16,609	$	0.20	$	3,079	16,139	$	0.19

*	Adjusted for two for one stock split effective February 17, 2004.


	For the Six Months Ended June 30,
	2004						2003
	(In thousands, except earnings per share)
	Net Income		Average Number of Shares	Per Share Amounts			Net Income		Average Number of Shares	Per Share Amounts
Basic earnings per share	$	6,546	16,070	$	0.41		$	5,604	15,449	$	0.36
Effect of dilutive securities:
Stock options		—	403	$	(0.01	)		—	386	$	(0.01	)

Diluted earnings per share*	$	6,546	16,473	$	0.40		$	5,604	15,835	$	0.35

*	Adjusted for two for one stock split effective February 17, 2004.

8. CASH DIVIDENDS

On July 14, 2004, the Board of Directors declared a quarterly cash dividend of 4 cents per share. This cash dividend will be paid on August 16, 2004 to shareholders of record as of July 30, 2004.

9. STOCK BASED COMPENSATION

At June 30, 2004, the Company had stock-based employee compensation plans, which are described more fully in Note 13 in Center Financial’s Annual Report on Form 10-K. The Company applies the intrinsic value method as described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its plans. Accordingly, compensation cost is not recognized when the exercise price of an employee stock option equals or exceeds the fair market value of the stock on the date the option is granted. The following table presents the pro forma effects on net income and related earnings per share if compensation costs related to the stock option plans were measured using the fair value method as prescribed under SFAS No. 123, “Accounting for Stock-Based Compensation”:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2004		2003		2004		2003
	(In thousands, except earnings per share)
Net income, as reported	$	3,199	$	3,079	$	6,546	$	5,604
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		91		84		170		156

Pro forma net income	$	3,108	$	2,995	$	6,376	$	5,448

Earning per share

Basic - as reported*	$	0.20	$	0.20	$	0.41	$	0.36
Basic - pro forma*	$	0.20	$	0.19	$	0.40	$	0.35

Diluted - as reported*	$	0.20	$	0.19	$	0.40	$	0.35
Diluted - pro forma*	$	0.19	$	0.18	$	0.39	$	0.34

*	Adjusted for two for one stock split effective February 17, 2004.

The fair value of the options granted was estimated using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended				Six Months Ended
	06/30/2004		06/30/2003		06/30/2004		06/30/2003
Dividend Yield	1.07	%	N/A		1.07		N/A
Volatility	18	%	24	%	18	%	24	%
Risk-free interest rate	3.3	%	4.9	%	3.3	%	4.9	%
Expected life	3-5 years		3-5 years		3-5 years		3-5 years

10. GOODWILL AND INTANGIBLES

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001 and also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those acquired intangible assets that are required to be included in goodwill. SFAS No. 142 requires that goodwill no longer be amortized, but instead be tested for impairment at least annually. Additionally, SFAS No. 142 requires recognized intangible assets to be amortized over their respective estimated useful lives and reviewed for impairment. We adopted SFAS No. 142 on January 1, 2002.

In April 2004, the Company purchased the Chicago branch of Korea Exchange Bank and recorded goodwill of $1.3 million and a core deposit intangible of $453,000, net of amortization. We amortize premiums on acquired deposits using the straight-line method over 5 to 9 years. Amortization expense for core deposit intangible was $9,000 for the six months ended June 30, 2004. Estimated amortization expense for core deposit intangible for the remainder of 2004 and five succeeding fiscal years as follows:


Dollars in thousands
2004 (remaining six months)	$	27
2005		53
2006		53
2007		53
2008		53
2009 thereafter		214

11. COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, commercial letters of credit, standby letters of credit, and performance bonds. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual notional amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of the collateral obtained, if deemed necessary by the Company upon extension of credit, is based on Management’s credit evaluation of the borrower.

Commercial letters of credit, standby letters of credit, and performance bonds 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 making loans to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

A summary of the notional amounts of the Company’s financial instruments relating to extension of credit with off-balance-sheet risk at June 30, 2004 and December 31, 2003 follows:


Outstanding Commitments (Dollars in thousands)

	June 30, 2004		December 31, 2003
Loans	$	155,935	$	113,950
Standby letters of credit		6,992		6,165
Performance bonds		93		112
Commercial letters of credit		31,953		19,135

12. CONTRACTUAL OBLIGATIONS

The following table presents, as of June 30, 2004, the Company’s significant fixed and determinable contractual obligations, within the categories described below, by payment date. These contractual obligations, except for the operating lease obligations, are included in the Consolidated Statements of Financial Condition. The payment amounts represent those amounts contractually due to the recipient.


	Payments Due by Period
	Less than 1 year		1-3 years		3-5 years		After 5 years		Total
	(Dollars in Thousands)
Debt obligations	$	4,207	$	4,000	$	—	$	22,076	$	30,283

Operating lease obligations		1,740		2,397		981		1,584		6,702

Total contractual obligations	$	5,947	$	6,397	$	981	$	23,660	$	36,985

13. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has identified certain variable-rate loans as a source of interest rate risk to be hedged in connection with the Company’s overall asset-liability management process. As these loans have contractually variable rates, there is a risk of fluctuation in interest income as interest rates rise and fall in future periods. In response to this identified risk, the Company uses interest rate swaps as a cash flow hedge to hedge the interest rate risk associated with the cash flows of the specifically identified variable-rate loans. To qualify for hedge accounting, the Company must demonstrate that at the inception of the hedge and on an on-going basis the changes in the fair value of the hedging instrument are expected to be perfectly effective in offsetting related changes in the cash flows of the hedged loans due to the matched terms in both the interest rate swap and the hedged loans. Accordingly, the accumulated change in the fair value of the cash flow hedge is recorded in a separate component of shareholders’ equity, net of tax, while ineffective portions are recognized in earnings immediately. Revenues or expenses associated with the interest rate swaps are accounted for on an accrual basis and are recognized as adjustments to interest income on loans, based on the interest rates currently in effect for the interest rate swap agreements.

The following table provides information as of June 30, 2004, on the Company’s outstanding derivatives:


Description	Notional Value		Period	Fixed Receiving Rate		Floating Paying Rate
(Dollars in thousands)
Interest Rate Swap I	$	20,000	05/02-05/05	6.89	%	WSJ Prime	*
Interest Rate Swap II	$	25,000	08/02-08/06	6.25	%	WSJ Prime	*
Interest Rate Swap III	$	20,000	12/02-12/05	5.51	%	WSJ Prime	*
Interest Rate Swap IV	$	20,000	08/03-08/07	6.25	%	WSJ Prime	*

(*)	At June 30, 2004, the Wall Street Journal published Prime Rate was 4.25 percent

The Company has entered into interest rate swaps to hedge the interest rate risk associated with the cash flows of specifically identified variable-rate loans. As of June 30, 2004, the Company had four interest rate swap agreements with a total notional amount of $85 million. Net interest income of $475,000 and $950,000 was recorded for the three months and six months ended June 30, 2004, respectively as compared to $445,000 and $883,000 for the corresponding periods last year. At June 30, 2004, the fair value of the interest rate swaps was at a favorable position of $271,000 net of tax of $197,000, and is included in accumulated other comprehensive income. At June 30, 2004, the related asset on the interest rate swap of $468,000 was included in other assets. The fair value of the interest rate swaps decreased as a response to rising interest rates, as well as approaching maturity dates.

The credit risk associated with the interest rate swap agreements represents the accounting loss that would be recognized at the reporting date if the counterparty failed completely to perform as contracted and any collateral or security proved to be of no value. To reduce such credit risk, the Company evaluates the counterparty’s credit rating and financial position. In Management’s opinion, the Company did not have a significant exposure to an individual counterparty before the maturity of the interest rate swap agreements, because the counterparties to the interest rate swap agreements are large banks with strong credit ratings.

14. BUSINESS SEGMENTS

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

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

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

The following tables present the operating results and other key financial measures for the individual operating segments for the three and six months ended June 30, 2004 and 2003.


	Three Months Ended June 30, 2004
	(Dollars in thousands)
	Banking Operations		TFS		SBA			Total
Interest income	$	10,323	$	1,317	$	1,484		$	13,124
Interest expense		3,397		198		—			3,595

Net interest income		6,926		1,119		1,484			9,529
Provision for loan losses		531		77		(8	)		600

Net interest income after provision for loan losses		6,395		1,042		1,492			8,929
Other operating income		3,144		831		915			4,890
Other operating expenses		7,178		964		435			8,577

Segment pretax profit	$	2,361	$	909	$	1,972		$	5,242

Segment assets	$	956,973	$	120,484	$	108,520		$	1,185,977


	Three Months Ended June 30, 2003
	(Dollars in thousands)
	Banking Operations		TFS		SBA			Total
Interest income	$	8,484	$	849	$	1,177		$	10,510
Interest expense		2,676		197		—			2,873

Net interest income		5,808		652		1,177			7,637
Provision for loan losses		257		83		210			550

Net interest income after provision for loan losses		5,551		569		967			7,087
Other operating income		2,834		694		910			4,438
Other operating expenses		5,974		477		180			6,631

Segment pretax profit	$	2,411	$	786	$	1,697		$	4,894

Segment assets	$	709,462	$	76,162	$	106,820		$	892,444


	Six Months Ended June 30, 2004
	(Dollars in thousands)
	Banking Operations		TFS		SBA			Total
Interest income	$	20,032	$	2,639	$	3,015		$	25,686
Interest expense		6,384		384		—			6,768

Net interest income		13,648		2,255		3,015			18,918
Provision for loan losses		1,127		242		81			1,450

Net interest income after provision for loan losses		12,521		2,013		2,934			17,468
Other operating income		6,209		1,509		1,257			8,975
Other operating expenses		13,321		1,637		825			15,783

Segment pretax profit	$	5,409	$	1,885	$	3,366		$	10,660

Segment assets	$	956,973	$	120,484	$	108,520		$	1,185,977


	Six Months Ended June 30, 2003
	(Dollars in thousands)
	Banking Operations		TFS		SBA		Total
Interest income	$	16,891	$	1,619	$	2,332	$	20,842
Interest expense		5,445		394		—		5,839

Net interest income		11,446		1,225		2,332		15,003
Provision for loan losses		605		76		269		950

Net interest income after provision for loan losses		10,841		1,149		2,063		14,053
Other operating income		5,287		1,416		854		7,557
Other operating expenses		10,997		1,181		531		12,709

Segment pretax profit	$	5,131	$	1,384	$	2,386	$	8,901

Segment assets	$	709,462	$	76,162	$	106,820	$	892,444

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the major factors that influenced our consolidated results of operations and financial condition for the three and six months ended June 30, 2004. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003 and with the unaudited consolidated financial statements and notes as set forth in this report.

FORWARD-LOOKING STATEMENTS

Certain matters discussed under this caption may constitute forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because the business of the Company involves inherent risks and uncertainties. Risks and uncertainties include possible future deteriorating economic conditions in the Company’s areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available-for-sale securities declining significantly in value as interest rates rise or issuer’s of such securities suffering financial losses; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. All of these risks could have a material adverse impact on the Company’s financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. For additional information concerning these factors, see “Interest Rate Risk Management” and “Liquidity and Capital Resources” contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K for the year ended December 31, 2003.

Critical Accounting Policy

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, Management has identified its most critical accounting policy to be that related to the allowance for loan losses. The Company’s allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan losses that Management believes is appropriate at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrowers’ sensitivities to interest rate movements and borrowers’ sensitivities to quantifiable external factors including commodity and finished good prices as well as acts of nature (earthquakes, floods, fires, etc.) that occur in a particular period. Qualitative factors include the general economic environment in our markets, including economic conditions in Southern California, South Korea and other Pacific Rim countries, and in particular, the state of certain industries. Size and complexity of individual credits in relation to lending officers’ background and experience levels, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in our methodologies. As the Company adds new products, increases the complexity of its loan portfolio, and expands its geographic coverage, it will enhance its methodologies to keep pace with the size and complexity of the loan portfolio. Management might report a materially different amount for the provision for loan losses in the statement of operations to change the allowance for loan losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with the Company’s financial statements and the accompanying notes presented elsewhere herein, as well as the portion of this Management’s Discussion and Analysis section entitled “Financial Condition Summary – Allowance for Loan Losses.” Although Management believes the level of the allowance as of June 30, 2004 is adequate to absorb losses inherent in the loan portfolio, a decline in the local economy may result in increasing losses that cannot reasonably be predicted at this time.

SUMMARY OF FINANCIAL DATA

Executive Overview

The Company continued to experience solid growth in loans and deposits in the second quarter of 2004. Consolidated net income for the second quarter of 2004 was $3.2 million, or $0.20 per diluted share compared to $3.1 million or $0.19 per diluted share in the second quarter of 2003. (All per share figures have been adjusted to reflect the two-for-one stock split effective February 17, 2004.) Consolidated net income for the first half of 2004 grew 17% to $6.5 million or $0.40 per diluted share compared to $5.6 million or $0.35 per diluted share in the first half of 2003. The following were significant factors related to the second quarter and first half of 2004 results as compared to comparable periods in 2003:

•

Fueled by strong loan growth our revenue increased by 19% to $14.4 million in the second quarter of 2004 versus 2003. For the first half of 2004, our revenue also increased by 24% to $27.9 million.

•

Net interest income after provision for loan losses increased 26% to $8.9 million in second quarter. For the six months ended June 30, 2004 net interest income after provision for loan losses increased by 24% to $17.5 million. These increases were due to the Company’s continued loan growth.

•

Our net interest margin decreased to 3.73% and 3.87% in the second quarter and first half of 2004, respectively as compared to 3.91% and 3.92% in the comparable periods of 2003 due to the following:

25 basis reduction in prime and market rate set by Federal Reserve Board in June 2003

Higher balance of funds invested in lower yielding money market funds

•

Noninterest income grew by $452,000 or 10% in the second quarter of 2004, compared with same period in 2003 due to solid gains in service fee income, which in turn result from increases in customer account relationships and loan servicing and trade finance transactions. New fee income-generating products such as the mortgage referral program, Bank Owned Life Insurance (‘BOLI’) and ATM funding program also helped to boost noninterest income. Noninterest income for the first half of 2004 was up by 19% to $9.0 million.

•

During the first half of 2004, we recorded strong loan growth in commercial real estate loans, commercial business loans and trade finance loans. High growth in trade finance was as a result of management’s efforts to capitalize on improving trends in Asian Pacific trade volumes.

•

We increased our provision for loan losses to $600,000, during the second quarter of 2004 as compared to $550,000 for the same period of 2003. Asset quality improved significantly and the Company recorded net recoveries of $166,000 in second quarter of 2004 compared to 2003, and the increase in the provision was primarily due to growth in the commercial real estate loan portfolio.

•

Total deposits increased by 25% during the first half of 2004. The most significant increase in deposits since December 31, 2003 was a $76.7 million increase in time deposits over $100,000. This increase in time deposits over $100,000 was mainly due to $20 million of new brokered deposits and increased contributions from new branches.

Our financial condition and liquidity remain strong. The following are important factors in understanding our financial condition and liquidity:

•

We expanded our branch network with our entry into the new market of Chicago in April 2004.

•

Our total assets continued to grow and reached $1.2 billion at June 30, 2004, an increase of 15% over December 2003.

•

Short-term investments including federal funds sold and investment in money market funds increased by $22.0 million in the first six months of 2004, as a reflection of temporarily investment of the Company’s excess funds subsequent to issuance of long-term subordinated debentures.

•

Under the regulatory framework for prompt corrective action, we continue to be “well-capitalized”.

•

We have replaced maturing short-term borrowings with low cost broker and branch deposits.

•

The Company declared its quarterly cash dividend of $0.04 per share in July 2004.

EARNINGS PERFORMANCE ANALYSIS

As previously noted and reflected in the Consolidated Statements of Operations, during the second quarter and for the six months ended June 30, 2004 the Company generated net income of $3.2 million and $6.5 million, respectively, as compared to $3.1 million and $5.6 million for the same periods in 2003. The Company earns income from two primary sources: net interest income, which is the difference between interest income generated from the successful deployment of earning assets and interest expense created by interest-bearing liabilities; and net noninterest income, which is basically fees and charges earned from customer services less the operating costs associated with providing a full range of banking services to customers.

Net Interest Income and Net Interest Margin

The Company’s net interest income depends on the yields, volumes, and mix of its earning asset components, as well as the rates, volume, and mix associated with its funding sources. The Company’s net interest margin is its taxable-equivalent net interest income expressed as a percentage of its average earning assets.

Total interest and dividend income for the second quarter of 2004 increased 25% to $13.1 million compared with $10.5 million for the same period in 2003, primarily due to growth in earning assets and income from interest rate swaps. Growth was driven by average net loans and average money market funds. Average net loans increased $251.9 million or 43% and average money market funds increased $10.1 million or 55% for the second quarter of 2004 compared to the same period in 2003.

Total interest expense for the second quarter of 2004 increased 24% to $3.6 million compared with $2.9 million for the same quarter in 2003. This increase was due to deposit growth partially offset by lower rates paid on time certificate of deposit accounts.

Net interest income before provision for loan losses increased by $1.9 million for the second quarter of 2004 compared to the like quarter in 2003. Of this increase, approximately $2.7 million was due to volume changes offset by $613,000 and $243,000 in rate and rate/volume changes, respectively. The average yield on loans for the second quarter of 2004 declined to 5.74% compared to 6.21% for the like quarter in 2003, a decrease of 47 basis points. The average investment portfolios for the second quarter of 2004 and 2003 were $112.6 million and $137.1 million, respectively. The average yields on the investment portfolio as of the first quarter of 2004 and 2003 were 3.16% and 3.42%, respectively.

The interest margin for the second quarter of 2004 equaled 3.73%, an 18 basis point decline compared to 3.91% for the same quarter of 2003. This decrease in the net interest margin was mainly attributable to a 25 basis point reduction in the prime and market rates set by the Federal Reserve Board in June 2003, higher balances invested in lower yielding assets, and a lower yield in the investment portfolio. The yield on earning assets for the second quarter of 2004 was 5.14%, 24 basis points lower than 5.38% in the same quarter of last year. This decrease in 2004 was mainly due to the decrease in loan yield and the increased investment in low yielding money market funds. Similarly, the average cost of interest-bearing liabilities declined to 2.00% in the second quarter of 2004 compared to 2.13% during the same quarter in 2003. This decrease was driven by 43 basis points decrease in yield of time certificate of deposits.

The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and average yields and rates by asset and liability component for the three months ended June 30, 2004 and 2003:


Distribution, Rate and Yield Analysis of Net Income

	Three Months Ended June 30,
	2004						2003
	(Dollars in thousands)
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield¹		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ¹
Assets:
Interest-earning assets:
Loans ²	$	843,084	$	12,029	5.74	%	$	591,191	$	9,151	6.21	%
Federal funds sold		39,294		102	1.04			36,526		118	1.30
Taxable investment securities:
U.S. Treasury		2,111		24	4.57			2,208		24	4.36
U.S. Governmental agencies debt securities		40,332		280	2.79			30,344		283	3.74
U.S. Governmental agencies mortgage backed securities		36,274		297	3.29			61,391		495	3.23
U.S. Governmental agencies collateralized mortgage obligations		—		—	—			5,150		28	2.18
Municipal securities		102		1	3.94			102		1	3.93
Other securities³		16,835		152	3.63			18,752		164	3.51


Total taxable investment securities:		95,654		754	3.17			117,947		995	3.38
Tax-advantaged investment securities⁴
Municipal securities		5,469		56	6.34			6,066		62	6.31
Others - Government preferred stock		11,489		75	3.62			13,075		112	4.73

Total tax-advantaged investment securities		16,958		131	4.49			19,141		174	5.23
Equity Stocks		3,815		37	3.90			893		18	8.08
Money market funds and interest-earning deposits		28,352		71	1.01			18,242		54	1.19

Total interest-earning assets		1,027,157	$	13,124	5.14	%		783,940	$	10,510	5.38	%

Non-interest earning assets:
Cash and due from banks		60,266						38,061
Bank premises and equipment, net		11,262						10,384
Customers’ acceptances outstanding		4,622						3,107
Accrued interest receivables		3,346						3,221
Other assets		24,824						9,333

Total noninterest-earning assets		104,320						64,106

Total Assets	$	1,131,477					$	848,046

¹	Average rates/yields for these periods have been annualized.

Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees (cost) included in loan income were approximately $11,000 and ($77,000), for the three months ended June 30, 2004 and 2003, respectively. Amortized loan (cost) fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

³	Other securities include U.S. government asset-backed securities, corporate trust preferred securities, and corporate debt securities.

⁴	Yields on tax-advantaged income have been computed on a tax equivalent basis. 100% of earnings on municipal obligations and 70% of earnings on the preferred stock are not taxable for federal income tax purposes.


Distribution, Rate and Yield Analysis of Net Income

	Three Months Ended June 30,
	2004						2003
			(Dollars in thousands)
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ⁵		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield⁵
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	182,295	$	677	1.49	%	$	142,015	$	496	1.40	%
Savings		65,759		597	3.65			51,760		377	2.92
Time certificates of deposit in: denominations of $100,000 or more		368,506		1,686	1.84			247,409		1,399	2.27

Other time certificates of deposit		76,997		352	1.84			83,770		474	2.27
		693,357		3,312	1.92			524,954		2,746	2.10
Other borrowed funds		10,985		101	3.70			15,901		127	3.20
Long-term subordinated debentures		18,557		182	3.94			—		—	—

Total interest-bearing liabilities		723,099	$	3,595	2.00	%		540,855	$	2,873	2.13	%

Non-interest-bearing liabilities:
Demand deposits		315,555						227,409
Other liabilities		10,709						9,746

Total non-interest bearing liabilities		326,264						237,155
Shareholders’ equity		82,114						70,036

Total liabilities and shareholders’ equity	$	1,131,477					$	848,046

Net interest income			$	9,529					$	7,637

Net interest spread ⁶					3.14	%					3.25	%
Net interest margin⁷					3.73	%					3.91	%

Ratio of average interest-earning assets to interest-bearing liabilities					142.05	%					144.94	%

Net interest income before provision for loan losses for the first half of 2004 was $18.9 million compared to $15.0 million for the first half of 2003, which constitutes an increase of $3.9 million, or 26%. Of this increase, approximately $5.0 million was due to volume changes offset by $860,000 and $228,000 in rate and rate/volume changes, respectively. The average yield on loans for the first half of 2004 declined to 5.82% compared to 6.30% for the like period in 2003, a decrease of 48 basis points. The average investment portfolios for the first half of 2004 and 2003 were $117.8 million and $144.4 million, respectively. The average yields on the investment portfolio as of the first half of 2004 and 2003 were 3.34% and 3.69%, respectively. Higher growth in lower cost deposits such as money market demand and NOW and savings accounts had a favorable impact on the Company’s net interest margin. For the first half of 2004, money market and NOW and savings accounts grew $35.6 million or 18% as compared to the like period in 2003. The average yield on savings for the first half of 2004 increased 44 basis points to 3.34% as compared to 2.90% for the same period in 2003, mainly due to increase in higher rate installment savings accounts. Other borrowed funds for the first half of 2004, increased $8.8 million to $24.8 million compared to $16.0 million for the first half of 2003. In order to take advantage of the lower long term borrowing rates, the Company increased its borrowings. The issuance of $18.0 million of long-term subordinated debenture in December 2003, contributed to the decline in the net interest margin, due to the higher cost of long-term subordinated debentures as compared to short-term borrowings such as fed funds purchased. Another factor that had a slight negative effect on the Company’s net interest margin for the six months ended June 30, 2004 and will continue to have a similar impact going forward is the increase in other non-earning assets. The Company’s BOLI, investments in an ATM funding program and in low income housing tax credit funds totaled $24.1 million at June 30, 2004. These assets, while having a positive impact on the Company’s profitability, are considered non-interest earning assets. Their income contributions are not included as interest income, although, funded by interest bearing liabilities and thus these balances ultimately have a negative impact on the Company’s net interest margin.

⁵	Average rates/yields for these periods have been annualized.

⁶	Represents the weighted average yield on interest-earning assets less the weighted average cost of interest-bearing liabilities.

⁷	Represents net interest income (before provision for loan losses) as a percentage of average interest-earning assets.


Distribution, Rate and Yield Analysis of Net Income

	Six Months Ended June 30,
	2004						2003
	(Dollars in thousands)
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ⁸		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ¹
Assets:
Interest-earning assets:
Loans ⁹	$	808,987	$	23,404	5.82	%	$	570,867	$	17,829	6.30	%
Federal funds sold		31,951		163	1.03			32,264		203	1.27
Taxable investment securities:
U.S. Treasury		2,126		49	4.63			2,215		49	4.46
U.S. Governmental agencies debt securities		42,844		614	2.88			31,574		625	3.99
U.S. Governmental agencies mortgage backed securities		38,501		680	3.55			67,453		1,168	3.49
U.S. Governmental agencies collateralized mortgage obligations		—		—	—			5,533		83	3.03
Municipal securities		102		3	5.91			102		3	5.93
Other securities ¹⁰		16,856		306	3.65			18,267		341	3.76

Total taxable investment securities:		100,429		1,652	3.31			125,144		2,269	3.66
Tax-advantaged investment securities ¹¹
Municipal securities		5,650		116	6.35			6,072		124	6.34
Others - Government preferred stock		11,769		187	4.40			13,229		253	5.31

Total tax-advantaged investment securities		17,419		303	5.03			19,301		377	5.63
Equity Stocks		3,196		62	3.90			855		24	5.66
Money market funds and interest-earning deposits		20,440		102	1.00			22,514		140	1.25

Total interest-earning assets		982,422	$	25,686	5.26	%		770,945	$	20,842	5.45	%

Non-interest earning assets:
Cash and due from banks		63,185						37,457
Bank premises and equipment, net		11,239						10,267
Customers’ acceptances outstanding		4,241						3,290
Accrued interest receivables		3,243						3,272
Other assets		24,329						9,070

Total noninterest-earning assets		106,237						63,356

Total Assets	$	1,088,659					$	834,301

⁸	Average rates/yields for these periods have been annualized.

⁹

Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan (cost) fees included in loan income were approximately $104,000 and ($10,000), for the six months ended June 30, 2004 and 2003, respectively. Amortized loan (cost) fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

¹⁰	Other securities include U.S. government asset-backed securities, corporate trust preferred securities, and corporate debt securities.

¹¹	Yields on tax-advantaged income have been computed on a tax equivalent basis. 100% of earnings on municipal obligations and 70% of earnings on the preferred stock are not taxable for federal income tax purposes.


Distribution, Rate and Yield Analysis of Net Income

	Six Months Ended June 30,
	2004						2003
	(Dollars in thousands)
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield¹²		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ⁵
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	171,652	$	1,227	1.44	%	$	150,152	$	1,089	1.46	%
Savings		63,804		1,059	3.34			49,693		714	2.90
Time certificates of deposit in:
denominations of $100,000 or more		344,425		3,150	1.84			238,279		2,820	2.39
other time certificates of deposit		76,161		697	1.84			83,994		962	2.31

		656,042		6,133	1.88			522,118		5,585	2.16
Other borrowed funds		24,829		270	2.18			16,048		254	3.19
Long-term subordinated debentures		18,557		365	3.96			—		—	—

Total interest-bearing liabilities		699,428	$	6,768	1.95	%		538,166	$	5,839	2.19	%

Non-interest-bearing liabilities:
Demand deposits		296,808						218,496
Other liabilities		11,292						9,041

Total non-interest bearing liabilities		308,100						227,537
Shareholders’ equity		81,131						68,598

Total liabilities and shareholders’ equity	$	1,088,659					$	834,301

Net interest income			$	18,918					$	15,003

Net interest spread ¹³					3.31	%					3.26	%
Net interest margin ¹⁴					3.87	%					3.92	%

Ratio of average interest-earning assets to interest-bearing liabilities					140.46	%					143.25	%

¹²	Average rates/yields for these periods have been annualized.

⁶	Represents the weighted average yield on interest-earning assets less the weighted average cost of interest-bearing liabilities.

⁷	Represents net interest income (before provision for loan losses) as a percentage of average interest-earning assets.

The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for interest-earning assets and interest-bearing liabilities and the amount of change attributable to (i) changes in average daily balances (volume), (ii) changes in interest rates (rate), and (iii) changes in both rate and volume (rate/volume):


	Three Months Ended June 30, 2004 vs. 2003 Increase (Decrease) Due to change In												Six Months Ended June 30, 2004 vs. 2003 Increase (Decrease) Due to change In
Earning Assets	Volume			Rate			Rate / Volume			Total			Volume			Rate			Rate / Volume			Total
	(Dollars in thousands)
Interest Income:
Loans ¹⁵	$	3,888		$	(691	)	$	(319	)	$	2,878		$	7,457		$	(1,363	)	$	(519	)	$	5,575
Federal funds sold		9			(23	)		(2	)		(16	)		(2	)		(39	)		1			(40	)

Taxable investment securities		(188	)		(63	)		10			(241	)		(449	)		(217	)		49			(617	)
Tax-advantaged securities ¹⁶		(20	)		(26	)		3			(43	)		(37	)		(42	)		5			(74	)
Equity stocks		59			(9	)		(31	)		19			69			(8	)		(23	)		38
Money market funds and interest-earning deposits		30			(8	)		(5	)		17			(13	)		(28	)		3			(38	)

Total earning assets		3,778			(820	)		(344	)		2,614			7,025			(1,697	)		(484	)		4,844

Interest Expense:

Deposits and borrowed funds
Money market and super NOW accounts		141			33			7			181			157			(19	)		—			138
Savings deposits		102			93			25			220			203			108			34			345
Time deposits		645			(353	)		(127	)		165			1,157			(845	)		(247	)		65
Other borrowings		(40	)		20			(6	)		(26	)		140			(81	)		(43	)		16
Long-term subordinated debentures		182			—			—			182			365			—			—			365

Total interest-bearing liabilities		1,030			(207	)		(101	)		722			2,022			(837	)		(256	)		929

Net interest income	$	2,748		$	(613	)	$	(243	)	$	1,892		$	5,003		$	(860	)	$	(228	)	$	3,915

Provision for Loan Losses

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for potential loan losses through charges to earnings, which are reflected monthly in the income statement as the provision for loan losses. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in Management’s judgment is adequate to absorb losses inherent in the Company’s loan portfolio.

The provision for loan losses for the quarter was $600,000, 9% above the $550,000 provision for the prior year period. On a year-to-date basis, the provision for loan losses through June 30, 2004 was $1.5 million, an increase of $550,000 over the $950,000 provision for the comparable period in 2003. Management decided it would be prudent and sound to make this provision in order to maintain the allowance at a level of 1.1% of total gross loans as compared to 1.2% at December 31, 2003. Management believes that the $1.5 million additional loan loss provision was adequate for the first six months of 2004. While Management believes that the allowance for loan losses at June 30, 2004 was adequate, future additions to the allowance will be subject to continuing evaluation of the estimation, inherent and other known risks in the loan portfolio. The procedures for monitoring the adequacy of the allowance, and detailed information on the allowance, are included below in “Allowance for Loan Losses.”

Noninterest Income

Noninterest income includes revenues earned from sources other than interest income. The primary sources of noninterest income include customer service charges and fees on deposit accounts, fees and commissions generated from trade finance activities and issuance of letters of credit, ancillary fees on loans, net gains on sales of loans and net gains on sale of investment securities available for sale.

¹⁵

Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in loan income were approximately $104,000 and ($10,000), for the six months ended June 30, 2004 and 2003, respectively. Amortized loan fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

¹⁶	Yield on tax-advantaged income have been computed on a tax equivalent basis. 100% of earnings on municipal obligations and 70% of earnings on the preferred stock are not taxable for federal income tax purposes.

For the second quarter of 2004, noninterest income grew 11% to $4.9 million compared to $4.4 million for the same quarter in 2003, but decreased from 2.27% to 1.91% of average earning assets for the same periods. Noninterest income was up by 18% to $9.0 million for the first half of 2004 as compared to $7.6 million in the comparable period of 2003.

The primary sources of recurring noninterest income continue to be customer service fee charges on deposit accounts and fees from trade finance transactions. Customer service fees increased by $251,000, or 14%, in the second quarter of 2004, and by $555,000, or 17% for the first six months of 2004, compared to the same period last year. The increase in customer service fees was mainly due to increases in customer account relationships. For the first half of 2004, customer service fees as a percentage of total core noninterest income decreased slightly to 43% compared to 44% for the first half of 2003.

Fee income from trade finance transactions increased by $275,000, or 43%, for the second quarter, and $343,000, or 27% for the first six months of 2004. This increase in trade finance loans was mainly due to Management’s efforts to capitalize on improving trends in the Asia Pacific trade volumes and a new trade finance team brought in during 2003.

The Company recorded slightly less gain of $890,000 on the sale of SBA loans in the second quarter of 2004, as compared to the $937,000 like quarter of 2003. However, the gain on sale of SBA loans increased by 35% to $1.3 million for the first half 2004 as compared to $937,000 in like period of 2003. This was due to the adoption of a new practice in the latter part of 2003 of selling SBA loans every quarter. The Company sold $19.1 million of SBA loans during the first half of 2004 as compared to $13.7 million in comparable period of 2003.

As a result of SBA loan sales and retention of servicing rights, loan service fees increased $119,000, or 35%, for the second quarter of 2004, and $385,000, or 62% for the first six months of 2004.

Slowing mortgage activity as a result of rising rates was a major contributor to decline in Company’s other income in the first quarter of 2004. Other income decreased by 16% to $426,000 for the second quarter of 2004, as compared to $509,000 in the like period of 2003. However, other income for the six months ended June 30, 2004 was increased slightly to $779,000 in comparison to $695,000 for the same period in 2003.

The following table sets forth the various components of the Company’s noninterest income for the periods indicated:

Noninterest Income


	For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2004					2003					2004					2003
	Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total
	(Dollars in thousands)
Noninterest income:
Customer service fee	$	1,994		40.78	%	$	1,743		39.27	%	$	3,910		43.57	%	$	3,355		44.40	%
Fee income from trade finance transactions		915		18.71			640		14.42			1,618		18.03			1,275		16.87
Wire transfer fees		213		4.36			177		3.99			398		4.43			331		4.38
Gain on sale of loans		890		18.20			937		21.11			1,267		14.12			937		12.40
Net gain on sale of securities available for sale		(6	)	(0.12	)		93		2.10			(6	)	(0.07	)		340		4.50
Other loan related service fees		458		9.37			339		7.64			1,009		11.24			624		8.26
Other income		426		8.70			509		11.47			779		8.68			695		9.19

Total noninterest income:	$	4,890		100.00	%	$	4,438		100.00	%	$	8,975		100.00	%	$	7,557		100.00	%

As a percentage of average earning assets:		1.91	%				2.27	%				1.84	%				1.98	%

Noninterest Expense

For the second quarter of 2004, noninterest expense increased 30% to $8.6 million, compared to $6.6 million for the same quarter in 2003. The increase in noninterest expense was mainly attributable to increases in professional service fees and other operating expenses. Noninterest expense as a percentage of average assets also increased to 3.35% in the second quarter of 2004 as compared to 3.39% in same period in 2003. Noninterest expense for the first half of 2004 increased 24% to $15.8 million compared with $12.7 million for the first half of 2003.

The Company’s efficiency ratio, defined as the ratio of noninterest expense to the sum of net interest income before provision for loan losses and noninterest income, as a reflection of increased noninterest expenses, increased to 59.48% for the second quarter of 2004, and 56.58% for the first half of 2004 compared to 54.91% and 56.33% in the like period a year ago. These increases were primarily due to increased legal expenses on ongoing legal cases and the Company’s recently announced expansion of its management infrastructure in preparation for the next stage of the Company’s growth.

Compensation and employee benefits increased 7% to $3.7 million for the second quarter ended of 2004 compared to $3.4 million for the same quarter in 2003 but decreased from 52% to 43% of total noninterest expenses for these periods. This increase in the dollar volume was mainly due to expenses associated with the increased personnel to staff new branch, Chicago branch acquisition, hiring of highly qualified individuals for the corporate offices and normal salary increases. Increase in compensation and employee benefits was 11% for the first half of 2004 compared to the same period in 2003.

Costs related to the acquisition of the branch office in Chicago and the relocation of our Inland Branch Office increased occupancy cost by 33% to $672,000 in the second quarter of 2004 from $504,000 in same quarter last year. Occupancy expense also increased to $1.2 million for the first half of 2004 as compared to $943,000 in like period last year.

Due to the increased legal expenses and higher audit fees, professional service fees increased by $758,000 to $1.1 million for second quarter 2004 compared to $403,000 in same period of 2003. Professional service fees as a percentage of total noninterest expense also increased significantly in the second quarter of 2004 to 14% from 6% in the second quarter of 2003. Professional service fees were also higher for the first half of 2004 and amounted to $1.3 million, or an increase of $640,000 as compared to $665,000 for the same period last year.

Business promotion and advertising expense increased by 43%, to $604,000 for second quarter of 2004 from $423,000 in like quarter year ago. This increase was mainly due to the increased promotional activity for the Company’s products and new Loan Production Office (‘LPO’).

Other operating expenses increased by $483,000 for the second quarter of 2004, and $619,000 for the first half of 2004. This increase was mainly due to increase in corporate administration expenses and loss on sale of fixed assets.

Remaining noninterest expenses include furniture, fixture and equipment, data processing, stationary and supplies, telecommunications, postage, courier service and security service expenses. For the second quarter of 2004, these noninterest expenses increased 8% to $1.4 million compared to $1.3 million for the same quarter in 2003. Increases were primarily due to the Chicago branch acquisition and relocation of our Inland Branch Office.

The following table sets forth the breakdown of noninterest expense for the periods indicated:

Noninterest Expense


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2004				2003				2004				2003
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
Salaries and benefits	$	3,675	42.85	%	$	3,435	51.80	%	$	7,357	46.61	%	$	6,607	51.99	%
Occupancy		672	7.83			504	7.60			1,209	7.66			943	7.42
Furniture, fixture, and equipment		329	3.84			318	4.80			650	4.12			641	5.04
Data processing		506	5.90			443	6.68			974	6.17			834	6.56
Professional services fees		1,161	13.54			403	6.08			1,305	8.27			665	5.23
Business promotion and advertising		604	7.04			423	6.38			925	5.86			854	6.72
Stationery and supplies		127	1.48			176	2.65			233	1.48			304	2.39
Telecommunications		157	1.83			110	1.66			283	1.79			237	1.86
Postage and courier service		158	1.84			130	1.96			287	1.82			251	1.97
Security service		167	1.95			151	2.28			322	2.04			294	2.31
Impairment loss of available for sale securities		—	—			—	—			540	3.42
Other operating expense		1,021	11.90			538	8.11			1,698	10.76			1,079	8.51

Total noninterest expense	$	8,577	100.00	%	$	6,631	100.00	%	$	15,783	100.00	%	$	12,709	100.00	%

As a percentage of average earning assets			3.35	%			3.39	%			3.23	%			3.32	%
Efficiency ratio			59.48	%			54.91	%			56.58	%			56.33	%

Provision for Income Taxes

Income tax expense is the sum of two components, current tax expense and deferred tax expense. Current tax expense is the result of applying the current tax rate to taxable income. The deferred portion is intended to reflect that income on which taxes are paid differs from financial statement pre-tax income, because some items of income and expense are recognized in different years for income tax purpose than for the financial statements.

The provision for income taxes increased 11% to $2.0 million for the second quarter of 2004 compared to $1.8 million for the same period in 2003, and the effective tax rates also increased to 38.97% from 37.09% for the second quarter of 2004. The increase in the tax provision was attributable to a 7% increase in pretax earnings in the second quarter of 2004 compared to the same period a year ago. The Company reduced taxes utilizing the tax credits from investments in the low-income housing projects in the amount of $259,000 for the first half of 2004 compared to $249,000 for the six months ended in June 30, 2003.

Deferred income tax assets or liabilities reflect the estimated future tax effects attributable to differences as to when certain items of income or expense are reported in the financial statements versus when they are reported in the tax return. The Company’s deferred tax asset was $4.1 million as of June 30, 2004, and $3.0 million as of December 31, 2003. As of June 30, 2004, the Company’s deferred tax asset was primarily due to book reserves for losses on loans. Deferred tax assets were partially offset by unrecognized book gains from securities that are available for sale.

FINANCIAL CONDITION ANALYSIS

The major components of the Company’s earning asset base are its interest-earning short-term investments, investment securities portfolio and loan portfolio. The detailed composition and growth characteristics of these three portfolios are significant to any analysis of the financial condition of the Company, and the loan portfolio analysis will be discussed in a later section of this Form 10-Q.

Interest Earning Short-Term Investments

The Company invests its excess available funds from daily operations in overnight Fed Funds and Money Market Funds. Money Market Funds are composed mostly of government funds and high quality short-term commercial paper. The Company can redeem the funds at any time. As of June 30, 2004 and December 31, 2003, the amounts invested in Fed Funds were $46.0 million and $41.6 million, respectively. The average yield earned on these funds was 1.03% for the first six months of 2004 compared to 1.27% for the same period last year. The Company invested $40.0 million and $22.4 million in Money Market Funds as of June 30, 2004 and December 31, 2003. The average balance and yield on money market funds were $20.4 million and 1.00% for the first six months of 2004 as compared to $22.5 million and 1.25% for the comparable period of 2003.

Investment Portfolio

As of June 30, 2004, investment securities totaled $116.3 million or 10% of total assets, compared to $125.5 million or 12% of total assets as of December 31, 2003. The decrease in the investment portfolio was due to: (i) the sale of $125,000 in available-for-sale securities, (ii) $5.6 million of available for sale and $350,000 of held-to-maturity securities called during the first six months, (iii) $1.3 million in held-to-maturity securities matured during the period, (iv) principal payments of $8.5 million on mortgage-backed securities, (v) $540,000 of impairment losses recorded, and (vi) increase in unrealized losses on government agency securities. These decreases were partially offset by purchases of $9.5 million in available-for-sale securities.

As of June 30, 2004, available-for-sale securities totaled $103.4 million, compared to $110.1 million as of December 31, 2003. Available-for-sale securities as a percentage of total assets decreased to 9% as of June 30, 2004 from 11% as of December 2003. Held-to-maturity securities decreased to $12.9 million as of June 30, 2004, compared to $15.4 million as of December 31, 2003. The composition of available-for-sale and held-to-maturity securities was 89% and 11% as of June 30, 2004, compared to 88% and 12% as of December 31, 2003, respectively. New securities were purchased in the available-for-sale classification to provide flexibility. For the three months and six months ended June 30, 2004, the yield on the average investment portfolio was 3.16% and 3.34%, respectively, decreases of 26 and 35 basis points, respectively, as compared to 3.42% and 3.69% for the same periods of 2003. During the first half of 2004, several of the Company’s government agency securities held in the available-for-sale category either sold or were paid off and were replaced with higher yielding adjustable mortgage backed securities, and a portion of the proceeds was used to fund higher yielding loans.

The average balance of taxable investment securities decreased by 20% to $100.4 million for the six months ended June 30, 2004, compared to $125.1 million for the same period last year. The annualized average yield declined 35 basis points to 3.31% for the six months ended June 30, 2004, compared to 3.66% for the same period last year. The decrease was due to the Company’s strategy of using proceeds from investment securities to finance higher yielding loans to enhance profitability.

The average balance of tax-advantaged securities was $17.4 million and $19.3 million for the first half of 2004 and 2003, respectively. The average yield on tax-advantaged securities for the six months ended June 30, 2004 was 3.50% compared to 3.93% for the same period last year. The tax-equivalent yield on these same securities for the six months ended June 30, 2004 was 5.03% compared to 5.63% for the same period last year. The decrease in yield on the tax advantage securities was primarily due to adjusting to the current lower rate, because these securities are adjustable rate securities.

The following table summarizes the amortized cost, fair value and distribution of the Company’s investment securities as of the dates indicated:


Investment Portfolio
	As of June 30, 2004				As of December 31 2003
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury securities	$	2,032	$	2,081	$	2,051	$	2,148
U.S. Government agencies asset-backed securities		13		13		19		19
U.S. Government agencies securities		42,037		41,093		45,595		45,036
U.S. Government agencies mortgage-backed securities		32,652		32,506		33,898		33,964
Government agencies preferred stock		11,983		10,989		12,680		12,124
Corporate trust preferred securities		11,000		10,890		11,000		10,890
Corporate debt securities		5,702		5,842		5,705		5,945

Total available for sale	$	105,419	$	103,414	$	110,948	$	110,126

Held to Maturity:
U.S. Government agencies securities	$	—	$	—	$	1,000	$	1,012
U.S. Government agencies mortgage-backed securities		7,575		7,465		8,458		8,453
Municipal securities		5,281		5,401		5,932		6,191

Total held to maturity	$	12,856	$	12,866	$	15,390	$	15,656

Total investment securities	$	118,275	$	116,280	$	126,338	$	125,782

The following table summarizes, as of June 30, 2004, the maturity characteristics of the investment portfolio, by investment category. Expected remaining maturities may differ from remaining contractual maturities because obligors may have the right to prepay certain obligations with or without penalties.

Investment Maturities and Repricing Schedule


	(Dollars in thousands)
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	Amount		Yield ¹⁷		Amount		Yield ¹¹		Amount		Yield		Amount		Yield ¹⁷		Amount		Yield ¹⁷
Available for Sale (Fair Value):
U.S. Treasury securities	$	2,081	4.72	%	$	—	—		$	—	—		$	—	—		$	2,081	4.72	%
U.S. Government agencies asset-backed securities		2	1.24			11	3.08			—	—			—	—			13	2.80
U.S. Government agencies securities		—	—			41,093	2.73			—	—			—	—			41,093	2.73
U.S. Government agencies mortgage-backed securities		—	—			3,325	4.33			1,566	3.94			27,615	3.46			32,506	3.57
Government agencies preferred stock		5,651	3.14			5,338	1.26			—	—			—	—			10,989	2.19
Corporate trust preferred securities		—	—			—	—			—	—			10,890	2.92			10,890	2.92
Corporate debt securities		515	6.12			5,327	4.96			—	—			—	—			5,842	3.67

Total available for sale securities	$	8,249	3.65		$	55,094	2.85		$	1,566	3.94		$	38,505	3.31		$	103,414	3.10

Held to Maturity (Amortized Cost):
U.S. Government agencies mortgage-backed securities		—	—			—	—			—	—			7,575	4.37			7,575	4.37
Municipal securities		—	—			1,695	4.21			3,139	4.23			447	3.65			5,281	4.17

Total held to maturity	$	—	—		$	1,695	4.21		$	3,139	4.23		$	8,022	4.32		$	12,856	4.29

Total investment securities	$	8,249	3.65	%	$	56,789	2.89	%	$	4,705	4.13	%	$	46,527	3.48	%	$	116,270	3.23	%

The following table shows the Company’s investments with gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2004:


	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars in thousands)
U.S Government agencies securities	$	36,068	$	(960	)		—		—		$	36,068	$	(960	)
U.S. Government agencies mortgage-backed securities		27,315		(366	)		—		—			27,315		(366	)
Government agencies preferred stock		8,438		(1,085	)		—		—			8,438		(1,085	)
Corporate trust preferred securities		—		—			10,890		(110	)		10,890		(110	)
Corporate debt securities		1,178		(12	)		—		—			1,178		(12	)
Municipal securities		1,020		(27	)		—		—			1,020		(27	)

Total	$	74,019	$	(2,450	)	$	10,890	$	(110	)	$	84,909	$	(2,560	)

As of June 30, 2004, the Company had total fair value of $84.9 million of securities with unrealized losses of $2.6 million. The market value of securities which have been in a continuous loss position in 12 months or more totaled $10.9 million, with an unrealized loss of $110,000.

¹⁷	Yields on tax-advantaged income have been computed on a tax equivalent basis. 100% of earnings on municipal obligations and 70% of earnings on the preferred stock are not taxable for federal income tax purposes.

For investments in an unrealized loss position at June 30, 2004, we have the intent and ability to hold these investments until the full recovery. During the first six months of 2004, as a result of an other than temporary decline in market value due to changes in interest rates, impairment charges of 540,0000 were recognized for floating rate agency preferred stocks.

All individual securities that have been in a continuous unrealized loss position for twelve months or longer at June 30, 2004 had investment grade ratings upon purchase. The issuers of these securities have not, to our knowledge, established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long term investment grade status at June 30, 2004.

Loan Portfolio

The Company continued to experience moderate loan growth during the first half of 2004. Net loans increased $152.2 million, or 21%, to $869.2 million at June 30, 2004. $8.0 million of loans purchased as part of Chicago branch purchase also contributed to loan growth in first half of 2004. The increase in loans was funded primarily through deposit growth coming from established branches. While Management believes that it can continue to leverage the Company’s current infrastructure to achieve similar or greater growth in loans for the remainder of the year, no assurance can be given that such growth will in fact occur. Net loans as of June 30, 2004, represented 73% of total assets, compared to 70% as of December 31, 2003.

The growth in net loans was comprised primarily of net increases in real estate commercial loans of $97.8 million or 25%, commercial loans of $28.5 million or 19%, consumer loans of $3.8 million or 8%, trade finance loans of $24.2 million or 39%. Partially offsetting the growth in these loan categories was a net decrease in construction loans of $949,000 or 5% and the sale of $19.1 million in SBA loans during the six months ended June 30, 2004. The decrease in construction loans was due primarily to loan payoffs.

As of June 30, 2004, commercial real estate continued to be the largest component of the Company’s total loan portfolio with loans totaling $482.6 million, representing 55% of total loans, compared to $384.8 million or 53% of total loans at December 31, 2003. The increase in commercial real estate loans resulted from Management’s efforts to promote this segment of the portfolio, as such loans involve a somewhat lesser degree of risk than certain other loans in the portfolio due to the nature and value of the collateral.

Trade finance loans increased by $24.2 million or 39% to $86.1 million at June 30, 2004 from $61.9 million at December 31, 2003. This increase in trade finance loans was mainly due to Management’s efforts to capitalize on improving trends in the Asia Pacific trade volumes and a new trade finance team brought in 2003.

The Company adopted a new practice in the later part of 2003 of selling SBA loans every quarter. The Company sold $19.1 million of SBA loans in first half of 2004, and retained the obligation to service the loans for a servicing fee and to maintain customer relations. As of June 30, 2004, the Company was servicing $106.0 million of sold SBA loans, compared to $91.5 million of sold SBA loans as of December 31, 2003. SBA loans as a percentage of total loans decreased slightly to 8% in first half of 2004 as compared to 9% in 2003, primarily due to increased sale volume in 2004.

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


	June 30, 2004					December 31, 2003
	Amount			Percent of Total		Amount			Percent of Total
	(Dollars in thousands)
Real Estate
Construction	$	17,515		1.99	%	$	18,464		2.53	%
Commercial ¹⁸		482,631		54.71			384,824		52.81
Commercial
Korean Affiliate Loans ¹⁹		6,381		0.72			14,865		2.04
Other commercial loans		169,524		19.22			132,503		18.18
Trade Finance ²⁰
Korean Affiliate Loans		10,802		1.22			3,899		0.54
Other trade finance loans		75,312		8.54			57,987		7.96
SBA		46,167		5.23			41,633		5.71
SBA held for sale ²¹		20,411		2.31			24,854		3.41
Other ²²		50		0.01			179		0.02
Consumer		53,351		6.05			49,530		6.80

Total Gross Loans		882,144		100.00	%	$	728,738		100.00	%

Less:
Allowance for Loan Losses		(10,044	)				(8,804	)
Deferred Loan Fees		(496	)				(331	)
Discount on SBA Loans Retained		(2,424	)				(2,595	)

Total Net Loans	$	869,180				$	717,008

The Company has historically made three types of credit extensions involving direct exposure to the Korean economy: (i) commercial loans to U.S. affiliates or subsidiaries or branches of companies located in South Korea (“Korean Affiliate Loans”), (ii) advances on acceptances by Korean banks, and (iii) loans against standby letters of credit issued by Korean banks. In certain instances, standby letters of credit issued by Korean banks support the loans made to the U.S. affiliates or branches of Korean companies, to which the Company has extended loans. In addition, the Company makes certain loans involving indirect exposure to the economies of South Korea as well as other Pacific Rim countries, as discussed at the end of this section.

The following table sets forth the amounts of outstanding balances in the above three categories for South Korea:


Loans and Commitments Involving Korean Country Risk

Category	June 30, 2004		December 31, 2003
	(Dollars in thousands)
Commercial loans to U.S. affiliates or branches of Korean companies …	$	11,703	$	9,575
Unused commitments for loans to U.S. affiliates of Korean companies		16,186		4,701
Acceptances with Korean Banks		24,423		9,347
Standby letters of credit issued by banks in South Korea		10,225		12,599

Total	$	62,537	$	36,222

Loans and commitments involving direct exposure to the Korean economy totaled $62.5 million or 6% of total loans and commitments and $36.2 million or 4% of total loans and commitments as of June 30, 2004 and December 31, 2003, respectively. The Company’s level of loans and commitments involving such exposure at June 30, 2004 has increased slightly as compared to December 31, 2003 due to a $15.1 million acceptances with Korean Banks, an $11.5 million increase in unused commitments for

¹⁸	Real estate commercial loans are loans secured by first deeds of trust on real estate

¹⁹	Consists of loans to U.S. affiliates or subsidiaries or branches of Korean companies.

²⁰	Includes advances on trust receipts, clean advances, cash advances, acceptances discounted, and documentary negotiable advances under commitments.

²¹	SBA loans held for sale is stated at the lower of cost or market.

²²	Consists of transactions in process and overdrafts.

loans to U.S. affiliates of Korean Companies and $2.1 million increase in commercial loans to U.S. affiliates or branches of Korean Companies. These increases were partially offset by a $2.4 million decrease in standby letters of credit issued by banks in South Korea.

In addition to the loans included in the above table, which involve direct exposure to the Korean economy, the Company also makes loans to many U.S. business customers in the import or export business whose operations are indirectly affected by the economies of various Pacific Rim countries including South Korea. As of June 30, 2004, loans outstanding involving indirect country risk totaled $25.4 million, or 2.9% of the Company’s total loans, and loans and commitments involving indirect country risk totaled $91.3 million, or 8.8% of the Company’s total loans and commitments. “Indirect country risk” is defined as the risk associated with loans to such U.S. businesses, which are dependent upon foreign countries for business and trade. Of the $91.3 million in total loans and commitments involving indirect country risk, approximately 68% involve borrowers doing business with Korea, with the remaining percentages to other individual Pacific Rim countries being relatively small in relation to the total indirect loans involving country risk. As a result, with the exception of South Korea, the Company does not believe it has significant indirect country risk exposure to any other specific Pacific Rim country.

Of the total loans outstanding and commitments involving indirect country risk identified above, approximately 48% of such loans and commitments were to businesses which import goods from Korea and 16% were loans or commitments to businesses which export goods to Korea.

Nonperforming Assets

Nonperforming assets are comprised of loans on nonaccrual status, loans 90 days or more past due but not on nonaccrual status, loans restructured where the terms of repayment have been renegotiated, resulting in a reduction and/or deferral of interest or principal, and Other Real Estate Owned (“OREO”). Management generally places loans on nonaccrual status when they become 90 days or more past due, unless they are fully secured and in the process of collection. Loans may be restructured in the discretion of Management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms, but the Company nonetheless believes the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of real property acquired through foreclosure or similar means that Management intends to offer for sale.

Management’s classification of a loan as nonaccrual or restructured is an indication that there is reasonable doubt as to the full collectibility of principal and/or interest on the loan. At this point, the Company stops recognizing income from the interest on the loan and reverses any uncollected interest that had been accrued but unpaid. If the loan deteriorates further due to a borrower’s bankruptcy or similar financial problems, unsuccessful collection efforts or a loss classification by regulators or auditors, the remaining balance of the loan is then charged off. These loans may or may not be collateralized, but collection efforts are continuously pursued. Total nonperforming loans were $3.2 million and $3.3 million as of June 30, 2004 and December 31, 2003. The slight decrease in nonperforming loans was mainly due to the charge-off of $435,000 of a construction loan in the first quarter of 2004. During the second quarter of 2004, the Company also reclassified this same large construction loan to the other commercial loan category since construction was completed and hotel was operational. As a result of this reclassification, nonperforming construction loans decreased and other commercial loans correspondingly increased. This reclassified loan was a large participated loan in the original amount of $2.3 million. The borrower is in a bankruptcy proceedings and waiting for court approval of reorganization plan. The Company charged off $435,000 of this loan in the first quarter of 2004 and reclassified the remaining $1.8 million in the second quarter. Nonperforming assets as a percentage of total loans and other real estate owned improved to 0.36% as of June 30, 2004 compared to 0.46% at December 31, 2003. Total nonperforming loans increased by $1.5 million to $3.2 million in the first half of 2004 from $1.7 million in the first half of 2003. This increase was primarily due to one previously mentioned commercial loan.

The following table provides information with respect to the components of the Company’s nonperforming assets as of the dates indicated:


	June 30, 2004			December 31, 2003			June 30, 2003
	(Dollars in Thousands)
Nonaccrual loans:
Real estate:
Construction	$	—		$	2,249		$	—
Commercial		—			—			35
Commercial:
Korean Affiliate Loans		—			—			—
Other commercial loans		2,782			756			877
Consumer		22			25			112
Trade finance:
Korean Affiliate Loans		—			—			—
Other trade finance loans		97			102			87
SBA		251			195			544
Other ²³		—			—			—

Total		3,152			3,327			1,655
Loans 90 days or more past due (as to principal or interest) still accruing:
Total		—			—			—
Restructured loans:²⁴
Total		—			—			—

Total nonperforming loans		3,152			3,327			1,655
Other real estate owned		—			—			—

Total nonperforming assets	$	3,152		$	3,327		$	1,655

Nonperforming loans as a percentage of total loans		0.36	%		0.46	%		0.27	%
Nonperforming assets as a percentage of total loans and other real estate owned		0.36	%		0.46	%		0.27	%
Allowance for loan losses to nonperforming loans		318.68	%		264.62	%		444.08	%

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

The following table provides information on impaired loans for the periods indicated:


	June 30, 2004			December 31, 2003
	(Dollars in thousands)
Impaired loans with specific reserves	$	4,390		$	5,160
Impaired loans without specific reserves		2,417			1,021

Total impaired loans		6,807			6,181
Allowance on impaired loans		(726	)		(825	)

Net recorded investment in impaired loans	$	6,081		$	5,356

Average total recorded investment in impaired loans	$	6,374		$	4,343
Interest income recognized on impaired loans on a cash basis	$	67		$	235

²³	Consists of transactions in process and overdrafts

²⁴	A “restructured loan” is one the terms of which were renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower.

Allowance for Loan Losses

The allowance for loan losses reflects Management’s judgment of the level of allowance adequate to provide for probable losses inherent in the loan portfolio as of the balance sheet date. On a quarterly basis, the Company assesses the overall adequacy of the allowance for loan losses, utilizing a disciplined and systematic approach which includes the application of a specific allowance for identified problem loans, a formula allowance for identified graded loans, an allocated allowance for large groups of smaller balance homogenous loans, and an allocated allowance for country risk exposure.

Allowance for Specifically Identified Problem Loans. The specific allowance is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, the Company measures impairment based on the fair value of the collateral when it is determined that foreclosure is probable.

Formula Allowance for Identified Graded Loans. Non-homogenous loans such as commercial real estate, construction, commercial business, trade finance and SBA loans that are not impaired are reviewed individually and subject to a formula allowance. The formula allowance is calculated by applying loss factors to outstanding pass, special mention, substandard, and doubtful loans. The evaluation of inherent loss for these loans involves a high degree of uncertainty, subjectivity, and judgment, because probable loan losses are not identified with specific loan. In determining the formula allowance, Management relies on a mathematical calculation that incorporates a twelve-quarter rolling average of historical losses.

In order to reflect the impact of recent events, the twelve-quarter rolling average is weighted. Loans risk-rated pass, special mention and substandard for the most recent three quarters are adjusted to an annual basis as follows:

•

The most recent quarter is weighted 4/1;

•

The second most recent is weighted 4/2; and

•

The third most recent is weighted 4/3.

The formula allowance may be further adjusted to account for the following qualitative factors:

•

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

•

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

•

Changes in the nature and volume of the loan portfolio;

•

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

•

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

•

Changes in the quality of our loan review system and the degree of oversight by the Board of Directors;

•

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

•

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

Allowance for Large Groups of Smaller Balance Homogeneous Loans. The portion of the allowance allocated to large groups of smaller balance homogenous loans is focused on loss experience for the pool rather than on analyses of individual loans. Large groups of smaller balance homogenous loans consist of consumer loans to individuals. The allowance for groups of performing loans is based on historical losses over a three-year period. In determining the level of allowance for delinquent groups of loans, the Company classifies groups of homogenous loans based on the number of days delinquent.

Allowance for Country Risk Exposure. The allowance for country risk exposure is based on an estimate of probable losses relating to both direct exposure to the Korean economy, and indirect exposure to the economies of various Pacific Rim countries. The exposure is related to trade finance loans made to support export/import businesses between U.S. and Korea, Korean Affiliate Loans, and certain loans to local U.S. businesses that are supported by stand by letters of credit issued by Korean banks. As with the credit rating system, the Company uses a country risk grading system under which risk gradings have been divided into three ranks. To determine the risk grading, the Company evaluates loans to companies with a significant portion of their business reliant upon imports or exports to Pacific Rim countries. The Company then analyzes the degree of dependency on business, suppliers or other business areas dependent upon such countries and applies an individual rating to the credit. The Company provides an allowance for country risk exposure based upon the rating of dependency. Most of the Company’s business customers whose operations are indirectly affected by the economies of such countries are in the import or export businesses. As part of its

methodology, the Company assigns one of three rating factors (25, 50 or 75 basis points) to borrowers in these businesses, depending upon the perceived degree of indirect exposure to such economies. The “country risk exposure factor” reflected in the table below is in addition to the allowance for such loans, which is already reflected, in the formula allowance. This factor takes into account both the direct risk on the loans included in the Loans Involving Country Risk table above, and the loans to import or export businesses involving indirect exposure to the Korean economy.

The process of assessing the adequacy of the allowance for loan losses involves judgmental discretion, and eventual losses may differ from even the most recent estimates. Further, the Company’s independent loan review consultants, as well as the Company’s external auditors, the FDIC and the California Department of Financial Institutions, review the allowance for loan losses as an integral part of their examination process.

The following table sets forth the composition of the allowance for loan losses as of June 30, 2004 and December 31, 2003:


Composition of Allowance for Loan Losses	As of June 30, 2004		As of December 31, 2003
	(Dollars in thousands)
Specific (Impaired loans).	$	726	$	825
Formula (non-homogeneous)		8,393		7,085
Homogeneous		356		302
Country risk exposure		569		592

Total allowance and reserve	$	10,044	$	8,804

The table below summarizes the activity in the Company’s allowance for loan losses for the periods indicated:


Allowance for Loan Losses	(Dollars in thousands)
	June, 30 2004			December 31, 2003			June, 30 2003
Balances:
Average total loans outstanding during period ²⁵	$	818,427		$	620,302		$	577,985
Total loans outstanding at end of period ²⁵	$	879,224		$	725,812		$	608,398
Allowance for Loan Losses:
Balance before reserve for losses on commitments	$	8,804		$	6,760		$	6,760
Reserve for losses on commitments to extend credit		—			—			—

Balance at beginning of period		8,804			6,760			6,760
Charge-offs:
Real Estate
Construction		435			—			—
Commercial		—			—			—
Commercial:
Korean Affiliate Loans		—			—			—
Other commercial loans		155			903			542
Consumer		80			225			42
Trade Finance:
Korean Affiliate Loans		—			—			—
Other trade finance loans		—			—			—
SBA		9			126			61
Other		—			—			—

Total charge-offs		679			1,254			645
Recoveries
Real estate
Construction		—			—			—
Commercial		—			—			—
Commercial:
Korean Affiliate Loans		—			425			114
Other commercial loans		375			144			119
Consumer		34			40			39
Trade finance:
Korean Affiliate Loans		—			—			—
Other trade finance loans		41			545			6
SBA		19			144			7
Other		—			—			—

Total recoveries		469			1,298			285

Net loan charge-offs and (recoveries)		210			(44	)		360
Provision for loan losses		1,450			2,000			950

Balance at end of period	$	10,044		$	8,804		$	7,350

Ratios:
Net loan charge-offs to average total loans		0.03	%		(0.01	)%		0.06	%
Provision for loan losses to average total loans		0.17			0.32			0.16
Allowance for loan losses to gross loans at end of period		1.14			1.21			1.21
Allowance for loan losses to total nonperforming loans		318.65			264.62			444.08
Net loan charge-offs to allowance for loan losses at end of period		2.09			(0.50	)		4.90
Net loan charge-offs to provision for loan losses		14.51	%		(2.20	)%		37.89	%

The allowance for loan losses was $10.0 million as of June 30, 2004, compared to $8.8 million at December 31, 2003. The Company recorded a provision of $1.5 million for the first six months of 2004. For the six months ended June 30, 2004, the Company charged off $679,000 and recovered $469,000, resulting in net charged-offs of $210,000, compared to net charge-offs of $360,000 for the same period in 2003. The decrease in net charged-offs was mainly due to the decrease in commercial loan charge-

²⁵	Total loans are net of deferred loan fees and discount on SBA loans sold.

offs. The Company further enhanced its asset quality in second quarter of 2004, and recorded $166,000 of net recoveries during the quarter. The improving loan quality, increased recoveries, and loan growth, allow the Company to slightly to decrease the allowance for loan losses to total gross loans ratio to 1.1% of at June 30, 2004 compared to 1.2% as of December 31, 2003. The Company provides an allowance for the new credits based on the migration analysis discussed previously. The ratio of the allowance for loan losses to total nonperforming loans increased to 318.7% as of June 30, 2004 compared to 264.6% as of December 31, 2003. Management believes that the ratio of the allowance to nonperforming loans at June 30, 2004 was adequate based on its overall analysis of the loan portfolio.

The balance of the allowance for loan losses increased to $10.0 million as of June 30, 2004 compared to $8.8 million as of December 31, 2003. This increase was mainly due to a $1.3 million increase in formula (non-homogeneous) allowance and a $54,000 increase in homogeneous allowance. Formula and homogeneous allowances were increased due to loan growth and increase in delinquent auto and credit card loans. These increases were partially offset by a decrease in the country risk allowance and specific allowance related to impaired loans.

The provision for loan losses for the first half of 2004 was $1.5 million, or 58% above the $950,000 provision for the prior year period. Considering the current economic climate and the significant growth in our loan portfolio, Management decided it would be prudent and sound to maintain the allowance at a level of 1.1% of total gross loans.

Management believes the level of allowance as of June 30, 2004 was adequate to absorb the estimated losses from any known or inherent risks in the loan portfolio and the loan growth for the quarter. However, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances may not require in increased provisions for loan losses in the future.

Management is committed to maintaining the allowance for loan losses at a level that is considered commensurate with estimated and known risks in the portfolio. Although the adequacy of the allowance is reviewed quarterly, Management performs an ongoing assessment of the risks inherent in the portfolio. Real estate is the principal collateral for the Company’s secured loans.

Other Assets

Other assets decreased by $1.0 million to $4.9 million as of June 30, 2004 compared to $5.9 million at December 31, 2003. The variance was due, primarily, to a decrease in fair value of interest rate swaps of $1.5 million.

Deposits

An important balance sheet component affecting the Company’s net interest margin is its deposit base. The Company’s average deposit cost decreased to 1.88% during the first half of 2004, compared to 2.16% in 2003. The significant decline in market rates, brought about by the 25 basis point decrease in short term rates set by the Federal Reserve Board, caused the average rates paid on deposits and other liabilities to decline. The U.S. economy is currently in a historically low interest rate environment, and Management has therefore sought to add wholesale funding sources in order to extend liability duration at reasonable costs, utilizing medium to long-term brokered deposits and Federal Home Loan Bank advances.

The Company can deter, to some extent, the rate hunting customers who demand high cost CDs because of local market competition using wholesale funding sources. Total brokered CDs were $21.5 million as of June 30, 2004, with the maturities ranging from one to sixteen months. With interest rates relatively low, the Company has extended the duration of its liabilities using wholesale funding sources to protect its net interest margin going forward in the event that interest rates begin to rise. In addition, the Company maintained a $60.0 million time certificate of deposit with the State of California as of June 30, 2004, which remained unchanged as compared to December 31, 2003. The deposit has been renewed every 3 to 6 months.

Total deposits increased $194.0 million or 22% to $1,061.9 million at June 30, 2004 compared to $867.9 million at December 31, 2003. This increase in deposits reflected growth across all deposit categories. The biggest increase among deposit categories was time deposits over $100,000, which increased by $76.7 million, or 25%, during the second quarter of 2004. The Company’s low cost non-interest bearing deposit also increased by 23% to $330.7 million during the second half of 2004 as compared to $268.5 million in like period last year. These increases were largely attributable to $20 million of new broker deposits and increased contributions from new branches, which opened in 2001 thru 2003 and $12.9 million in deposits assumed as part of the Chicago branch purchase in April 2004. As of June 30, 2004, new branches opened since 2001 held $299.3 million in total deposits. Deposit contribution by the new branches also increased to 28% of total deposits at June 30, 2004 as compared to 27% at December 31, 2003.

Information concerning the average balance and average rates paid on deposits by deposit type for the three and six months ended June 30, 2004 and 2003 is contained in the “Distribution, Yield and Rate Analysis of Net Income” tables above in the section entitled “Net Interest Income and Net Interest Margin.”

Other Borrowed Funds

The Company regularly uses Federal Home Loan Bank of San Francisco (“FHLB”) advances and short-term borrowings, which consist of notes issued to the U.S. Treasury to manage Treasury Tax and Loan payments. The Company’s outstanding FHLB borrowing was $9.5 million and $50.3 million at June 30, 2004 and December 31, 2003, respectively. This decrease was due to Management’s decision to replace maturing short-term FHLB advances with brokered deposits and other deposits generated by the branches. Notes issued to the U.S. Treasury amounted to $2.0 million as of June 30, 2004 compared to none as of December 31, 2003. The total borrowed amounts outstanding at June 30, 2004 and December 31, 2003 were $11.7 million and $50.7 million, respectively.

In addition, the issuance of long-term subordinated debentures at the end of 2003, consisting of $18.0 million in “pass-through” trust preferred securities, created another source of funding.

For information regarding to the Company’s significant fixed and determinable contractual obligations is contained in Note 12 to the financial statements located elsewhere herein.

LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT

Liquidity

Liquidity is the Company’s ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Company’s principal sources of liquidity have been growth in deposits, proceeds from the maturity of securities, and prepayments from loans. To supplement its primary sources of liquidity, the Company maintains contingent funding sources, which include a borrowing capacity of up to 25% of total assets upon providing collateral with the Federal Home Loan Bank of San Francisco, access to the discount window of the Federal Reserve Bank of San Francisco, a deposit facility with the California State Treasurer’s office up to 50% of total equity with collateral pledging, and unsecured Fed funds lines with correspondent banks.

As of June 30, 2004, the Company’s liquidity ratio, which is the ratio of available liquid funds to net deposits and short-term liabilities, was 19%. Total available liquidity as of that date was $189.0 million, consisting of excessive cash holdings or balances in due from banks, overnight Fed Funds Sold, Money Market Funds and uncollateralized securities. It is the Company’s policy to maintain a minimum liquidity ratio of 20%. The Company’s net non-core fund dependence ratio was 31.8% under applicable regulatory guidelines, which assumes all certificates of deposit over $100,000 (“Jumbo CD’s”) as volatile sources of funds. The Company has identified approximately $40 million of Jumbo CD’s as stable and core sources of funds based on past historical analysis. The non-core fund dependence ratio was 30% with the assumption of $40 million as stable and core fund sources. The net non-core fund dependence ratio is the ratio of net short-term investment less non-core liabilities divided by the long-term assets. The Company had $21.5 million and $1.6 million in brokered deposits as of June 30, 2004 and December 31, 2003, respectively.

Market Risk/Interest Rate Risk Management

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities, but also to a certain extent from foreign exchange rate risk and commodity risk. The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. To that end, Management actively monitors and manages its interest rate risk exposure.

Asset/liability management is concerned with the timing and magnitude of the repricing of assets and liabilities. The Company actively monitors its assets and liabilities to mitigate risks associated with interest rate movements. In general, Management’s strategy is to match asset and liability balances within maturity categories to limit the Company’s exposure to earnings fluctuations and variations in the value of assets and liabilities as interest rates change over time. The Company’s strategy for asset/liability management is formulated and monitored by the Company’s Asset/Liability Management Board Committee (the “Board Committee’). This Board Committee is composed of four outside directors and the President. The Treasurer serves as secretary of the Committee. The Board Committee meets quarterly to review and adopt recommendations of the Asset/Liability Management Committee.

The Asset/Liability Management Committee consists of executive and manager level officers from various areas of the Company including lending, investment, and deposit gathering, in accordance with policies approved by the Board of Directors. The primary goal of the Asset/Liability Management Committee is to manage the financial components of the Company to optimize net income under varying interest rate environments. The focus of this process is the development, analysis, implementation, and monitoring of earnings enhancement strategies, which provide stable earnings and capital levels during periods of changing interest rates.

The Asset/Liability Management Committee meets regularly to review, among other matters, the sensitivity of the Company’s assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, and maturities of investments and borrowings. The Asset/Liability Management Committee also approves and establishes pricing and funding decisions with respect to overall asset and liability composition, and reports regularly to the Asset/Liability Board Committee and the Board of Directors.

Interest Rate Risk

Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change. In general, the interest that the Company earns on its assets and pays on its liabilities are established contractually for specified period of time. Market interest rates change over time and if a financial institution cannot quickly adapt to changes in interest rate, it may be exposed to volatility in earnings. For instance, if the Company were to fund long-term fixed rate assets with short-term variable rate deposits, and interest rates were to rise over the term of the assets, the short-term variable deposits would rise in cost, adversely affecting net interest income. Similar risks exist when rate sensitive assets (for example, prime rate based loans) are funded by longer-term fixed rate liabilities in a falling interest rate environment.

In order to monitor and manage interest rate risk, Management utilizes quarterly gap analysis and quarterly simulation modeling as a tool to determine the sensitivity of net interest income and the economic value sensitivity of the balance sheet. These techniques are complementary and both are used to provide a more accurate measurement of interest rate risk.

Gap analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice during a particular time interval. A liability sensitive position results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. As of June 30, 2004, the Company was asset sensitive with a positive one-year gap of $202.2 million or 17.1% of total assets and 18.5% of earning assets. As the Company’s assets tend to reprice more frequently than its liabilities over a one-year horizon, the Company will realize higher net interest income in a rising rate environment and lower net interest income in a falling rate environment.

Although the interest rate sensitivity gap analysis is a useful measurement tool and contributes to effective asset/liability management, it is difficult to predict the effect of changing interest rates based solely on that measure. As a result, the Asset/Liability Management Committee also uses simulation modeling on a quarterly basis as a tool to measure the sensitivity of earnings and net portfolio value (“NPV”) to interest rate changes. Net portfolio value is defined as the net present value of an institution’s existing assets, minus the present value of liabilities and off-balance sheet instruments. The simulation model captures all assets, liabilities, and off-balance sheet financial instruments, such as the interest rate swaps, and other significant variables considered to be affected by interest rates. These other significant variables include prepayment speeds on mortgage-backed securities, cash flows on loans and deposits, principal amortization, call options on investment securities purchased, balance sheet growth assumptions, and changes in interest rate relationships as various rate indices react differently to market rates. The simulation measures the volatility of net interest income and net portfolio value under immediate rising or falling market rate scenarios in 100-basis-point increments up to 300 basis points.

The following table sets forth, as of June 30, 2004, the estimated impact of changes on the Company’s net interest income over a twelve-month period and NPV, assuming a parallel shift of 100 to 300 basis points in both directions.


Change (In Basis Points)	Net Interest Income (next twelve months)		% Change		NPV		% Change
(Dollars in thousands)
+300	$	55,451	20.32	%	$	79,026	-7.77	%
+200	$	50,932	10.52	%	$	81,507	-4.87	%
+100	$	48,545	5.34	%	$	83,056	-3.06	%
-100	$	42,920	-6.87	%	$	88,087	2.81	%
-200	$	39,433	-14.43	%	$	90,123	5.18	%

As previously indicated, net income increases (decreases) as market interest rates rise (fall) and the net portfolio value decreases (increases), as the rate rises (falls). The NPV declines (increases) as interest income increases (decreases), since the change in the discount rate has a greater impact on the change in the NPV than does the change in the cash flows.

The simulating model as described above, primary analytical tool used by the Company to gauge interest rate sensitivity is a simulation model used by many community banks, which is based upon the actual maturity and repricing characteristics of interest-rate-sensitive assets and liabilities. The model attempts to forecast changes in the yields earned on assets and the rates paid on liabilities in relation to changes in market interest rates. As an enhancement to the primary simulation model, other factors are incorporated into the model, including prepayment assumptions and market rates of interest provided by independent broker/dealer quotations, an independent pricing model, and other available public information. The model also factors in projections of anticipated activity levels of the Company product lines. Management believes that the assumptions it uses to evaluate the vulnerability of the Company’s operations to changes in interest rates approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Company’s assets and liabilities and the estimated effects of changes in interest rates on the Company’s net interest income and NPV could vary substantially if different assumptions were used or if actual experience were to differ from the historical experience on which they are based.

The Company’s historical strategies in protecting both net interest income and the economic value of equity from significant movements in interest rates have involved using various methods of assessing existing and future interest rate risk exposure and diversifying and restructuring its investment portfolio accordingly. The Company may use off-balance sheet instruments, such as interest rate swaps, as part of its overall goal of minimizing the impact of interest rate fluctuations on the Company’s net interest margin and its shareholders’ equity. As of June 30, 2004, the Company had four interest rate swap agreements with a total notional amount of $85 million, wherein the Company receives a fixed rate of 6.89%, 6.25%, 5.51% and 6.25% at quarterly intervals, respectively. The Company pays a floating rate at quarterly intervals for all four interest rate swaps based on the Wall Street Journal published Prime Rate, on notional amounts of $20,000,000, $25,000,000, $20,000,000, and $20,000,000, respectively and these contracts mature on May 10, 2005, August 15, 2006, December 19, 2005, and August 25, 2007, respectively. At June 30, 2004, the Wall Street Journal published Prime Rate was 4.25%. The Company’s policies also permit the purchase of rate caps and floors, although the Company has not yet engaged in these activities.

CAPITAL RESOURCES

Shareholders’ equity as of June 30, 2004 was $82.3 million, compared to $78.3 million as of December 31, 2003. The primary sources of increases in capital have been retained earnings and relatively nominal proceeds from the exercise of employee incentive and/or nonqualified stock options. The Company did, however, issue $18 million in Trust Preferred Securities in 2003 through its wholly owned subsidiary, Center Capital Trust I. The proceeds of this issuance are considered to be Tier 1 capital for regulatory purposes but long-term debt in accordance with generally accepted accounting principles. However, no assurance can be given that the Trust Preferred Securities will continue to be treated as Tier 1 capital in the future. Shareholders’ equity is also affected by increases and decreases in unrealized losses on securities classified as available-for-sale. The Company is committed to maintaining capital at a level sufficient to assure shareholders, customers, and regulators that the Company is financially sound and able to support its growth from its retained earnings. The Company is committed to maintaining capital at a level sufficient to assure shareholders, customers, and regulators that the Company is financially sound and able to support its growth from its retained earnings. Since inception, the Company has been reinvesting its earnings into its capital in order to support the Company’s continuous growth through the payment of stock rather than cash dividends. Beginning in October 2003 Center Financial commenced a new dividend policy of paying quarterly cash dividends to its shareholders. In accordance with this policy, the Company paid a cash dividend since October 2003, and cash dividend paid amounted to $1.3 million in 2004. The Company plans to continue to pay quarterly cash dividends in the future, provided that such dividends allow the Company to continue to meet regulatory capital requirements and are not overly restrictive to its growth capacity. However, no assurance can be given that the Bank’s and the Company’s future earnings and/or growth expectations in any given year will justify the payment of such a dividend.

The Company is subject to risk-based capital regulations adopted by the federal banking regulators. These guidelines are used to evaluate capital adequacy and are based on an institution’s asset risk profile and off-balance sheet exposures. The risk-based capital guidelines assign risk weightings to assets both on and off-balance sheet and place increased emphasis on common equity. According to the regulations, institutions whose Tier I risk based capital ratio, total risk based capital ratio and leverage ratio meet or exceed 6%, 10%, and 5%, respectively, are deemed to be “well-capitalized.” All of the Company’s capital ratios were well above the minimum regulatory requirements for a “well-capitalized” institution.

The following table compares the Company’s and Bank’s actual capital ratios at June 30, 2004, to those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:


Risk Based Ratios	Center Financial Corporation		Center Bank		Minimum Regulatory Requirements		Well Capitalized Requirements
Total Capital (to Risk-Weighted Assets)	11.24	%	11.16	%	8.00	%	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	10.20	%	10.12	%	4.00	%	6.00	%
Tier 1 Capital (to Average Assets)	9.12	%	9.06	%	4.00	%	5.00	%

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information concerning quantitative and qualitative disclosures about market risk is included as part of Part I, Item 2 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Liquidity and Market Risk/Interest Rate Risk Management”.

Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures - The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls - There were no significant changes in the Company’s internal controls over financial reporting or in other factors in the second quarter of 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

From time to time, we are a party to claims and legal proceedings arising in the ordinary course of our business. With the exception of the potentially adverse outcome in the litigation described in the next two paragraphs, after taking into consideration information furnished by our counsel as to the current status of these claims and proceedings, we do not believe that the aggregate potential liability resulting from such proceedings would have a material adverse effect on our financial condition or results of operation.

On or about March 3, 2003, we were served with a complaint filed by Korea Export Insurance Corporation (“KEIC”) in Orange County, California Superior Court, entitled Korea Export Insurance Corporation v. Korea Data Systems (USA), Inc., et al. KEIC is seeking to recover alleged losses from a number of parties involved in international trade transactions that gave rise to bills of exchange financed by various Korean Banks but not ultimately paid. KEIC is seeking to recover damages of approximately $56 million from us based on a claim that we, in our capacity as a collecting bank for these bills of exchange, acted negligently in presenting and otherwise handling trade documents for collection. Initially, we moved to dismiss KEIC’s claims based on the pleadings. Our motion to dismiss was not granted, and we have answered KEIC’s complaint denying liability. We have also asserted claims against various other parties seeking indemnification to the extent we may be found liable, and also seeking damages. Other parties against whom we have made claims have made tort liability and indemnification claims against us (and other parties in the case). None of the claims against us or the other parties has yet been adjudicated, and the litigation is only in the preliminary stages. We are vigorously defending this lawsuit.

We believe we have meritorious defenses against the claims made by KEIC and the party alleged to have accepted bills of exchange. However, we cannot predict the outcome of this litigation, and it will be expensive and time-consuming to defend. While it is possible that a portion of the claims may ultimately be covered by insurance, it is unlikely that this determination can be made until after the final disposition of the case. If the outcome of this litigation is adverse to us, and we are required to pay significant monetary damages, our financial condition and results of operations are likely to be materially and adversely affected.

Item 2: CHANGES IN SECURITIES USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable

Item 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company’s annual meeting of shareholders was held on May 12, 2004. Proxies were solicited by the Company’s management pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to Management’s nominees for directorship as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of shareholders. The directors noted below were elected to two-year terms. The votes tabulated were:


	Authority Given	Authority Withheld
Chung Hyun Lee	14,730,148	66,013
Jin Chul Jhung	14,730,148	66,013
Peter Y. S. Kim	14,727,778	68,383
Seon Hong Kim	14,611,277	184,884

There were no broker non-votes received with respect to this item.

In addition, the terms of the following directors continued after the shareholders’ meeting:

David Z. Hong Chang Hwi Kim Sang Hoon Kim Monica Yoon

Item 5: OTHER INFORMATION

Not applicable

Item 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits


Exhibit No.		Description
2.1		Plan of Reorganization and Agreement of Merger dated June 7, 2002 among California Center Bank, Center Financial Corporation and CCB Merger Company1

2.2		Branch Purchase and Assumption Agreement dated January 7, 20042

3.1		Restated Articles of Incorporation of Center Financial Corporation1

3.2		Restated Bylaws of Center Financial Corporation1

10.1		Employment Agreement between California Center Bank and Seon Hong Kim dated March 30, 20043

10.2		Amended and Restated 1996 Stock Option Plan (assumed by Registrant in the reorganization) 3

10.3		Lease for Corporate Headquarters Office1

10.4		Indenture dated as of December 30, 2003 between Wells Fargo Bank, National Association, as Trustee, and Center Financial Corporation, as Issuer2

10.5		Amended and Restated Declaration of Trust of Center Capital Trust I, dated as of December 30, 20032

10.6		Guarantee Agreement between Center Financial and Wells Fargo Bank, National Association dated as of December 30, 20032

11		Statement of Computation of Per Share Earnings (included in Note 7 to Consolidated Financial Statements included herein.)

31.1		Certification of Chief Executive Officer (Section 302 Certification)

31.2		Certification of Principal Financial Officer (Section 302 Certification)

32.1		Certification of Periodic Financial Report (Section 906 Certification)

(b) Reports on Form 8-K

A filing was made on July 27, 2004 of a press release dated July 26, 2004, reporting the Company’s financial results for the three and six months ended June 30, 2004.

1	Incorporated by reference from Exhibit to the Company’s Registration Statement on Form S-4 filed on June 14, 2002

2	Filed as an Exhibit to the Form 10-K filed with Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference

3	Filed as an Exhibit to the Form 10-Q filed with Securities and Exchange Commission on May 13, 2004 and incorporated herein by reference

SIGNATURES

Pursuant to the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:


Date: August 12, 2004		/s/ Seon Hong Kim
		Center Financial Corporation Seon Hong Kim President & Chief Executive Officer

Date: August 12, 2004		/s/ Debbie H. Kong
		Center Financial Corporation Debbie H. Kong First Vice President & Controller (principal financial officer)