CENTER FINANCIAL CORP - FORM 10-Q

CENTER FINANCIAL CORP - FORM 10-Q - May 9, 2011

Attached files

Attached files

CENTER FINANCIAL CORP Reports

file	filename
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - CENTER FINANCIAL CORP	dex312.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - CENTER FINANCIAL CORP	dex311.htm
EX-32 - CERTIFICATION OF PERIODIC FINANCIAL REPORT - CENTER FINANCIAL CORP	dex32.htm

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 March 31, 2011

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)		(Zip Code)

Registrant’s telephone number, including area code—(213) 251-2222

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer”, or a “smaller reporting company”. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

As of May 2, 2011, there were 39,912,914 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 (UNAUDITED)			3

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS			7

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS			34

FORWARD-LOOKING STATEMENTS			34

EXECUTIVE OVERVIEW			36

EARNINGS PERFORMANCE ANALYSIS			37

FINANCIAL CONDITION ANALYSIS			42

LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT			54

CAPITAL RESOURCES			57

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			57

ITEM 4: CONTROLS AND PROCEDURES			58

PART II - OTHER INFORMATION			59

ITEM 1: LEGAL PROCEEDINGS			59

ITEM 1A. RISK FACTORS			59

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			59

ITEM 3: DEFAULTS UPON SENIOR SECURITIES			59

ITEM 4: (REMOVED AND RESERVED)			59

ITEM 5: OTHER INFORMATION			59

ITEM 6: EXHIBITS			60

SIGNATURES			61

PART I—FINANCIAL INFORMATION

Item 1:

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

AS OF MARCH 31 AND DECEMBER 31


	3/31/2011		12/31/2010
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	33,858	$	29,237
Federal funds sold		150		136,180
Money market funds and interest-bearing deposits in other banks		283,807		93,503

Cash and cash equivalents		317,815		258,920
Securities available for sale, at fair value		312,336		289,551
Non-covered loans held for sale, at the lower of cost or fair value		65,677		60,234
Federal Home Loan Bank and Pacific Coast Bankers Bank stock, at cost		14,426		15,019
Non-covered loans, net of allowance for loan losses of $51,010 and $52,047 as of March 31, 2011 and December 31, 2010, respectively		1,330,122		1,415,646
Covered loans, net of allowance for loan losses of $1,010 as of March 31, 2011 and December 31, 2010		110,753		116,283
Premises and equipment, net		13,160		13,532
Core deposit intangibles, net		449		464
Customers’ liability on acceptances		1,819		2,287
Non-covered other real estate owned, net		144		937
Covered other real estate owned, net		1,405		1,459
Accrued interest receivable		5,489		5,509
Deferred income taxes, net		14,556		14,383
Investments in affordable housing partnerships		10,469		10,824
Cash surrender value of life insurance		12,890		12,791
Income tax receivable		13,298		14,277
Prepaid regulatory assessment fees		6,902		7,864
FDIC loss share receivable		21,849		23,991
Other assets		6,559		6,308

Total	$	2,260,118	$	2,270,279

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	408,843	$	396,973
Interest-bearing		1,370,763		1,374,021

Total deposits		1,779,606		1,770,994
Acceptances outstanding		1,819		2,287
Accrued interest payable		4,771		5,113
Other borrowed funds		167,749		188,670
Long-term subordinated debentures		18,557		18,557
Accrued expenses and other liabilities		8,709		10,646

Total liabilities		1,981,211		1,996,267
Commitments and Contingencies		—		—

Shareholders’ Equity
Preferred stock, no par value, 10,000,000 shares authorized; issued and outstanding, 55,000 shares as of March 31, 2011 and December 31, 2010 Series A, cumulative, issued and outstanding, 55,000 shares as of March 31, 2011 and December 31, 2010		53,472		53,409
Common stock, no par value; 100,000,000 shares authorized; issued and outstanding, 39,908,514 and 39,914,686 shares (including 55,362 and 76,809 shares of unvested restricted stock) as of March 31, 2011 and December 31, 2010, respectively		187,892		187,754
Retained earnings		36,135		32,000
Accumulated other comprehensive income, net of tax		1,408		849

Total shareholders’ equity		278,907		274,012

Total	$	2,260,118	$	2,270,279

See accompanying notes to interim consolidated financial statements.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31


	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands, except per share data)
Interest and Dividend Income:
Interest and fees on loans	$	21,161		$	20,598
Interest on federal funds sold		42			60
Interest on taxable investment securities		1,771			2,937
Dividends on equity stock		11			—
Money market funds and interest-earning deposits		2			7

Total interest and dividend income		22,987			23,602
Interest Expense:
Interest on deposits		4,634			5,461
Interest on borrowed funds		1,542			1,603
Interest expense on trust preferred securities		142			140

Total interest expense		6,318			7,204

Net interest income before provision for loan losses		16,669			16,398
Provision for loan losses		6,000			7,000

Net interest income after provision for loan losses		10,669			9,398
Noninterest Income:
Customer service fees		1,800			2,031
Fee income from trade finance transactions		616			658
Wire transfer fees		313			281
Gain on sale of loans		3,752			—
Net gain on sale of securities available for sale		—			2,209
Loan service fees		662			160
Increase in FDIC loss share receivable		49			—
Other income		508			380

Total noninterest income		7,700			5,719
Noninterest Expense:
Salaries and employee benefits		5,113			4,340
Occupancy		1,345			1,195
Furniture, fixtures, and equipment		603			507
Data processing		669			464
Legal fees		397			306
Accounting and other professional service fees		572			315
Business promotion and advertising		354			257
Supplies and communications		348			264
Security service		293			235
Regulatory assessment		1,053			986
Merger related expenses		437			—
Net OREO related expenses		474			959
Other operating expenses		1,321			1,035

Total noninterest expense		12,979			10,863

Income before income tax provision		5,390			4,254
Income tax provision		505			1,487

Net income		4,885			2,767
Preferred stock dividends and accretion of preferred stock discount		(750	)		(29,752	)

Net income (loss) available to common shareholders		4,135			(26,985	)

Comprehensive income:
Net income	$	4,885		$	2,767
Other comprehensive income (loss) - unrealized gain (loss) on available-for-sale securities, net of income tax (expense) benefit of $(453) and $672 for the period ending March 31, 2011 and 2010, respectively		408			(1,248	)

Comprehensive income	$	5,293		$	1,519

Earnings (loss) per common share:
Basic	$	0.10		$	(1.27	)

Diluted	$	0.10		$	(1.27	)

Average common shares outstanding:
Basic		39,825,609			21,286,403

Diluted		39,897,740			21,286,403

See accompanying notes to interim consolidated financial statements.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31


	2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	4,885		$	2,767
Adjustments to reconcile net income to net cash provided by operating activities:
Compensation expenses related to stock options and restricted stock awards		138			235
Depreciation and amortization		2,407			768
Amortization of deferred fees and accretion of discount		(2,140	)		(71	)
Amortization of premium, net of accretion of discount, on securities available for sale		685			970
Provision for loan losses		6,000			7,000
Net gain on sale of securities available for sale		—			(2,209	)
Net (increase) decrease in loans held for sale		(23,592	)		3,467
Gain on sale of loans		(3,865	)		—
Proceeds from sale of loans		22,014			—
Net loss on sale of non-covered OREO		312			—
Valuation adjustment on covered OREO		109			—
Deferred tax benefit		(626	)		(1,365	)
Decrease in accrued interest receivable		20			256
Net increase in cash surrender value of life insurance policy		(99	)		(99	)
Decrease in income tax receivable		979			877
Decrease in prepaid assessment		962			914
Increase in other assets		(997	)		(627	)
Decrease in accrued interest payable		(342	)		(1,706	)
Decrease in accrued expenses and other liabilities		(2,405	)		(3,001	)

Net cash provided by operating activities		4,445			8,176


Cash flows from investing activities:
Purchase of securities available for sale		(63,671	)		(17,948	)
Proceeds from principal repayment, maturity or call of available-for-sale securities		41,213			39,657
Proceeds from sale of securities available for sale		—			59,038
Net decrease in investment in Federal Home Loan Bank and other equity stock		593			—
Net decrease in non-covered loans		73,957			8,227
Net decrease in covered loans		7,465			—
Proceeds from sale of loans acquired for investment		4,923			—
Proceeds from recoveries of loans previously charged off		704			180
Proceeds from FDIC loss share receivable		2,191			—
Net increase in premises and equipment		(190	)		(84	)
Proceeds from sale of non-covered OREO		570			405

Net cash provided by investing activities		67,755			89,475


Cash flows from financing activities:
Net increase (decrease) in deposits		8,612			(122,358	)
Net (decrease) increase in other borrowed funds		(21,230	)		14,817
Payment of cash dividend		(687	)		(688	)

Net cash used in financing activities		(13,305	)		(108,229	)

Net increase (decrease) in cash and cash equivalents		58,895			(10,578	)
Cash and cash equivalents, beginning of the year		258,920			232,801

Cash and cash equivalents, end of the year	$	317,815		$	222,223

See accompanying notes to interim consolidated financial statements.

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)-(Continued)

FOR THE THREE MONTHS ENDED MARCH 31


	2011		2010
	(Dollars in thousands)
Supplemental disclosure of cash flow information:
Interest paid	$	6,970	$	8,910
Income taxes paid, net of refunds		10		6

Supplemental schedule of noncash investing, operating, and financing activities:
Cash dividend accrual for preferred stock		344		344
Accretion of preferred stock discount		750		29,752
Transfer of non-covered loans to non-covered loans held for sale		4,585		—
Transfer of non-covered loans to non-covered OREO		90		—
Transfer of covered loans to covered OREO		55		—
Conversion of preferred stock to common stock		—		70,000

See accompanying notes to interim consolidated financial statements.

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. THE BUSINESS OF CENTER FINANCIAL CORPORATION

Center Financial Corporation (“Center Financial”) is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and is headquartered in Los Angeles, California. Center Financial Corporation (“Center Financial”) was incorporated on April 19, 2000 and acquired all of the issued and outstanding shares of Center Bank (the “Bank”) in October 2002. Currently, Center Financial’s direct subsidiaries include the Bank and Center Capital Trust I. Center Financial exists primarily for the purpose of holding the stock of the Bank and of the other subsidiary and for providing access to capital and funding for the Bank. Center Financial, the Bank, and Center Capital Trust I are collectively referred to herein as the “Company.”

The Bank is a California state-chartered and Federal Deposit Insurance Corporation (“FDIC”) insured financial institution, which was incorporated in 1985 and commenced operations in March 1986. The Bank’s headquarters are located at 3435 Wilshire Boulevard, Suite 700, Los Angeles, California 90010. The Bank provides comprehensive financial services for small to medium sized business owners, primarily in Southern California. The Bank specializes in commercial loans, most of which are secured by real property, to small business customers. In addition, the Bank is a Preferred Lender of Small Business Administration (“SBA”) loans and provides trade finance loans. The Bank’s primary market is the Southern California area, including Los Angeles, Orange, San Bernardino, and San Diego counties, primarily focused in areas with high concentrations of Korean-Americans.

The Bank currently has 22 full-service branch offices, 19 branches of which are located in California. The Bank also operates two Loan Production Offices in Seattle and Denver. In December 2003, Center Financial 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 generally dividends from the Bank and equity earnings in the Bank. The expenses of Center Financial, including interest on junior subordinated debentures issued to Center Capital Trust I, legal and accounting fees and NASDAQ listing fees have been and will generally be paid by the cash on hand or from dividends paid by the Bank.

2. BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of Center Financial and the Bank. Center Capital Trust I is not consolidated as disclosed in Note 12.

The interim consolidated financial statements are presented in accordance with U. S. generally accepted accounting principles (“GAAP”) for unaudited financial statements. The information furnished in these interim statements reflects all adjustments that 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 months ended March 31, 2011 are not necessarily indicative of the results that 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 interim 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, as amended, for the year ended December 31, 2010.

Use of estimates

Management has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in accordance with GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for loan losses, investment securities, the carrying value of other real estate owned, the carrying value of intangible assets, and the carrying value of the FDIC loss share receivable and the realization of deferred tax assets.

Reclassifications

Reclassifications have been made to the prior year financial statements to conform to the current presentation.

3. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies are fully described in Note 2 to the consolidated financial statements in Center Financial’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2010 and there have been no material changes noted.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements, which amends ASC 820 to require additional disclosures regarding fair value measurements. Specifically, the ASU requires disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, the ASU also amends ASC 820 to clarify certain existing disclosure requirements. For example, the ASU clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities. Previously separate fair value disclosures were required for each major category of assets and liabilities. ASU 2010-06 also clarifies the requirement to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, these disclosures are effective for the quarter ended March 31, 2010. The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements became effective for the Company for the quarter ended March 31, 2011. The Company adopted this new accounting guidance as of January 1, 2010 and 2011, respectively, and the impact of adoption was not material on the consolidated financial statements.

In July 2010, the FASB issued FASB ASU 2010-20, Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which required more information about credit quality. The ASU requires an entity to provide additional disclosures including, but not limited to, a rollforward schedule of the allowance for credit losses (with the ending allowance balance further disaggregated based on impairment methodology) and the related ending balance of the finance receivable presented by portfolio segment, and the aging of past due financing receivables at the end of the period, the nature and extent of troubled debt restructurings that occurred during the period and their impact on the allowance for credit losses, the nature and extend of troubled debt restructurings that occurred within the last year, that have defaulted in the current reporting period, and their impact on the allowance for credit losses, the nonaccrual status of financing receivables, and impaired financing receivables, presented by class. The new disclosures of information as of the end of a reporting period are effective for both interim and annual reporting periods ending after December 15, 2010 for public companies. The Company adopted this new accounting guidance as of December 31, 2010.

In December 2010, the FASB issued FASB ASU 2010-29, Disclosure of Supplementary ProForma Information for Business Combinations, a consensus of the FASB Emerging Issues Task Force (Issue No. 10-G), which requires that the pro forma information be presented as if the business combination occurred at the beginning of the prior annual reporting period for purposes of calculating both the current reporting period and the prior reporting period pro forma financial information. The ASU also requires that this disclosure be accompanied by a narrative description of the amount and nature of material nonrecurring pro forma adjustments. The amendments in this ASU are effective for business combinations with effective dates on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Prospective application is required with early adoption permitted. The Company does not anticipate the new guidance will have a material impact on the consolidated financial statements as this relates to only pro-forma disclosures.

In April 2011, the FASB issued FASB ASU 2011-02, Receivables (Topic 310) – A Creditor’s Determination whether a Restructuring Is A Troubled Debt Restructuring, which provides additional guidance for determining whether the creditor has granted a concession and whether the debtor is experiencing financial difficulty. A troubled debt restructuring (TDR) is a restructuring of a debt if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Public entities are required to adopt this ASU for interim and annual periods beginning on or after June 15, 2011. For purposes of TDR disclosure, the ASU applies retrospectively to restructurings occurring on or after the beginning of the annual period of adoption, or January 1, 2011 for the Company. However, any changes in the method used to measure impairment apply prospectively. While no new TDR disclosures are required, public entities must disclose the recorded investment and related allowance for credit losses for receivables that require a change in impairment method. Beginning in the period the ASU is adopted, public entities also will be subject to the requirements to disclose the activity-based information about TDRs that was previously deferred by ASU 2011-01. The Company will adopt this guidance during the quarterly period ending September 30, 2011 and currently does not anticipate the new guidance will have a material impact on the consolidated financial statements.

5. BUSINESS COMBINATION

On December 9, 2010, Center Financial and Nara Bancorp, Inc. (“Nara Bancorp”) entered into a definitive agreement to merge. Under the terms of the merger agreement, Center Financial shareholders will receive a fixed ratio of 0.7804 of a share of Nara Bancorp common stock in exchange for each share of Center Financial common stock they own. At the closing date of the merger, Nara Bancorp shareholders will own approximately 55% of the combined company and Center Financial shareholders will own approximately 45%. The combined company will operate under a new name that will be determined prior to the closing. In addition, at the closing or as soon as possible thereafter, it is anticipated that Nara Bank, a California state-chartered bank and a wholly-owned subsidiary of Nara Bancorp, will merge with and into the Bank, with the Bank as the surviving bank after the bank merger.

The boards of directors of both companies have unanimously approved the transaction. The transaction is subject to regulatory approval, the approval of the shareholders of both Center Financial and Nara Bancorp, and other customary closing conditions. The Company anticipates that the regulatory approval process will take several months and, therefore, does not expect to complete the merger before the second half of 2011. There is no assurance, however, that the bank regulators will approve the merger within this time frame, or at all.

6. INVESTMENT SECURITIES

The following table summarizes the amortized cost, fair value and distribution of the Company’s investment securities as of March 31, 2011 and December 31, 2010:


	As of March 31, 2011
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	300	$	—	$	—		$	300
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		45,966		76		(327	)		45,715
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		171,820		4,121		(277	)		175,664
Corporate trust preferred security		2,746		—		(1,994	)		752
Mutual funds backed by adjustable rate mortgages		5,000		54		—			5,054
Collateralized mortgage obligations		84,338		668		(155	)		84,851

Total securities available for sale	$	310,170	$	4,919	$	(2,753	)	$	312,336


	As of December 31, 2010
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	300	$	—	$	—		$	300
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		58,994		94		(481	)		58,607
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		154,149		3,549		(599	)		157,099
Corporate trust preferred security		2,738		—		(1,979	)		759
Mutual funds backed by adjustable rate mortgages		5,000		73		—			5,073
Collateralized mortgage obligations		67,063		816		(166	)		67,713

Total securities available for sale	$	288,244	$	4,532	$	(3,225	)	$	289,551

The following table shows the Company’s investments with gross unrealized losses and related fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011 and December 31, 2010.


	As of March 31, 2011
	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. Governmental agencies securities and U.S. Government sponsored enterprise securities	$	26,706	$	(327	)	$	—	$	—		$	26,706	$	(327	)
U.S. Governmental agencies and U.S. Government sponsored enterprise mortgage-backed securities		26,376		(277	)		—		—			26,376		(277	)
Corporate trust preferred security		—		—			752		(1,994	)		752		(1,994	)
Collateralized mortgage obligations		23,507		(155	)		—		—			23,507		(155	)

Total	$	76,589	$	(759	)		752		(1,994	)	$	77,341	$	(2,753	)


	As of December 31, 2010
	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. Governmental agencies and U.S. Government sponsored enterprise securities	$	33,486	$	(481	)	$	—	$	—		$	33,486	$	(481	)
U.S. Governmental agencies and U.S. Government sponsored enterprise mortgage-backed securities		27,084		(599	)		—		—			27,084		(599	)
Corporate trust preferred security		—		—			759		(1,979	)		759		(1,979	)
Collateralized mortgage obligations		20,369		(166	)		—		—			20,369		(166	)

Total	$	80,939	$	(1,246	)	$	759	$	(1,979	)	$	81,698	$	(3,225	)

The Company considers numerous factors to determine any other-than-temporary impairment (“OTTI”) for the collateralized debt obligation (“CDO”) trust preferred security including review of trustee reports, monitoring of “break in yield” tests, analysis of current defaults and deferrals and the expectation for future defaults and deferrals. The Company reviews the key financial characteristics for individual issuers (commercial banks or thrifts) in the CDO trust preferred security and considers capital ratios, leverage ratios, nonperforming loan and nonperforming asset ratios, in addition to the credit ratings. The credit ratings of the Company’s CDO trust preferred security were “Ca” (Moody’s) and “C” (Fitch) at March 31, 2011 and December 31, 2010.

The Company uses cash flow projections for the purpose of assessing OTTI on CDO trust preferred security which incorporates certain credit events in the underlying collaterals and prepayment assumptions. The projected issuer default rates are assumed at a rate equivalent to 150 basis points applied annually and have a 0% recovery factor after the initial default date. The principal is assumed to be prepaying at 1% annually and at 100% at maturity.

Based on the results from the cash flow model, the CDO trust preferred security did not experience an adverse change in its cash flow status. As such, based on all of these factors, the Company determined that there was no OTTI adjustment required for the securities that have been in a continuous unrealized loss position at March 31, 2011. The risk of future OTTI will be highly dependent upon the performance of the underlying issuers. The Company does not have the intention to sell and does not believe it will be required to sell the CDO trust preferred security.

The following table summarizes, as of March 31, 2011, 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.


	Within one Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Available for Sale (Fair Value):
U.S. Treasury	$	300		0.16	%	$	—		—	%	$	—		—	%	$	—		—	%	$	300		0.16	%
U.S. Governmental agencies securities and U.S Government sponsored enterprise securities		—		—			45,715		1.03			—		—			—		—			45,715		1.03
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		2		4.71			1,392		4.57			69,023		2.86			105,247		3.29			175,664		3.13
Corporate trust preferred security		—		—			—		—			—		—			752		11.71			752		11.71
Mutual funds backed by adjustable rate mortgages		5,054		3.39			—		—			—		—			—		—			5,054		3.39
Collateralized mortgage obligations		—		—			1,082		1.86			22,536		2.10			61,233		2.22			84,851		2.18

Total available for sale	$	5,356		3.21		$	48,189		1.15		$	91,559		2.67		$	167,232		2.94		$	312,336		2.59

7. NON-COVERED LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

On April 16, 2010, the DFI closed Innovative Bank, Oakland, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement with loss sharing. Non-covered loans refer to loans not covered by the FDIC loss sharing agreement. Loans acquired in an FDIC-assisted acquisition that are subject to a loss sharing agreement are referred to as “covered loans” and reported separately in the interim consolidated statements of financial condition.

Non-covered loans, segregated by class of loans, consist of the following at March 31, 2011 and December 31, 2010:


	March 31, 2011						December 31, 2010
	Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Real Estate:
Construction	$	14,182			1.0	%	$	14,803			1.0	%
Commercial		880,723			60.8			914,003			59.8
Commercial:
Commercial		276,180			19.0			315,285			20.5
Trade Finance		66,243			4.6			71,174			4.7
SBA ¹⁾		100,712			7.0			101,683			6.7
Others:
Consumer		69,699			4.8			71,279			4.7
Other ²⁾		40,038			2.8			40,039			2.6

Total Non-covered Loans ³⁾		1,447,777			100.0			1,528,266			100.0

Less:
Allowance for Loan Losses		51,010						52,047
Net deferred Loan Fees ⁴⁾		(649	)					(523	)
Discount on SBA Loans Retained		1,617						862

Net Non-covered Loans and Loans Held for Sale	$	1,395,799					$	1,475,880

1)	Includes non-covered SBA loans held for sale of $61.1 million and $46.4 million, at the lower of cost or fair value, at March 31, 2011 and December 31, 2010, respectively.

2)	Consists of term fed funds sold for maturity of greater than 1 day, transactions in process and overdrafts.

3)	Includes loans held for sale of $65.7 million and $60.2 million at the lower of cost or fair value at March 31, 2011 and December 31, 2010, respectively.

4)	Net deferred loan fees are net of origination costs. In 2011 and 2010, origination costs exceeded fees on SBA origination.

The activity in the allowance for loan losses on total loans (including non-covered loans and covered loans) by portfolio segment as of and for the three months ended March 31, 2011 and the year ended December 31, 2010 is as follows:


Allowance for credit losses :	Real Estate			Commercial			Consumer / Others			Total
	(Dollars in thousands)
Three months ended March 31, 2011
Beginning balance	$	29,272		$	22,035		$	1,750		$	53,057
Charge-offs		(5,617	)		(1,821	)		(303	)		(7,741	)
Recoveries		557			81			66			704
Provision		4,857			705			438			6,000

Ending balance	$	29,069		$	21,000		$	1,951		$	52,020

Period-end amount allocated to loans:
Individually evaluated for impairment	$	5,904		$	10,593		$	328		$	16,825
Collectively evaluated for impairment		23,165			9,397			1,623			34,185
Acquired with deteriorated credit quality		—			1,010			—			1,010

Ending balance	$	29,069		$	21,000		$	1,951		$	52,020

Year ended December 31, 2010
Beginning balance	$	37,604		$	19,000		$	1,939		$	58,543
Charge-offs		(21,243	)		(10,637	)		(767	)		(32,647	)
Recoveries		1,918			3,079			154			5,151
Provision		10,993			10,593			424			22,010

Ending balance	$	29,272		$	22,035		$	1,750		$	53,057


Period-end amount allocated to loans:
Individually evaluated for impairment	$	2,349		$	8,965		$	329		$	11,643
Collectively evaluated for impairment		26,923			12,060			1,421			40,404
Acquired with deteriorated credit quality		—			1,010			—			1,010

Ending balance	$	29,272		$	22,035		$	1,750		$	53,057



Financing receivables ¹⁾:	Real Estate			Commercial			Consumer / Others			Total
	(Dollars in thousands)
March 31, 2011
Loans individually evaluated for impairment	$	61,658		$	33,560		$	1,457		$	96,675
Loans collectively evaluated for impairment		828,662			348,484			108,280			1,285,426
Loans acquired with deteriorated credit quality		67,525			43,944			294			111,763

Ending balance	$	957,845		$	425,988		$	110,031		$	1,493,864

December 31, 2010
Loans individually evaluated for impairment	$	69,287		$	26,830		$	1,460		$	97,577
Loans collectively evaluated for impairment		845,707			414,890			109,858			1,370,455
Loans acquired with deteriorated credit quality		72,249			44,129			915			117,293

Ending balance	$	987,243		$	485,849		$	112,233		$	1,585,325

1)	Financing receivables represent unpaid principal balance, which approximates recorded investment.

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 for impairment 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. Loans are identified for specific allowances from information provided by several sources including asset classification, third party reviews, delinquency reports, periodic updates to financial statements, public records, and industry reports. All loan types are subject to impairment evaluation for a specific allowance once identified as impaired.

The Bank generally writes down nonperforming collateral dependent impaired loans to the value of the underlying collateral. The collateral value is generally updated every six months and the impairment amount is generally charged off during the quarter in which collateral value is updated. The performing impaired loans, such as performing TDRs, are allocated with specific reserve and are not generally charged off. The performing impaired loans typically continue to make contractual payments according to its restructured terms and conditions.


	As of and for the three months ended March 31, 2011			As of and for the twelve months ended December 31, 2010
	(Dollars in thousands)
Impaired loans with specific reserves
Without charge-offs	$	50,704		$	35,109
With charge-offs		3,712			2,575
Impaired loans without specific reserves

Without charge-offs		29,471			49,043
With charge-offs		12,789			10,850

Total impaired loans		96,676			97,577
Allowance on impaired loans		(16,825	)		(11,643	)

Net recorded investment in impaired loans	$	79,851		$	85,934

Non-covered nonperforming loans, net of SBA guarantees totaled $34.1 million at March 31, 2011, a decrease of $8.1 million as compared to $42.2 million at December 31, 2010. Non-covered nonperforming loans, net of SBA guarantees as a percentage of total non-covered loans decreased to 2.36% at March 31, 2011 as compared to 2.76% at December 31, 2010. Gross interest income of approximately $120,000 and $377,000 would have been additionally recorded for the three months ended March 31, 2011 and 2010, respectively, if these loans had been paid in accordance with their original terms and had been outstanding throughout the applicable period then ended or, if not outstanding throughout the applicable period then ended, since origination.

The following table shows non-covered nonperforming loans by class of loans as of the dates indicated:


	March 31, 2011			December 31, 2010			March 31, 2010
	(Dollars in thousands)
Non-covered nonperforming loans:
Real estate:
Construction	$	5,738		$	6,108		$	7,008
Commercial - Real Estate		21,490			29,167			49,088
Commercial
Commercial - Business		5,263			5,696			8,871
Trade Finance		100			—			1,498
SBA		5,278			3,896			3,612
Other
Consumer		383			651			348
Other		—			—			—

Total non-covered nonperforming loans		38,252			45,518			70,425
Guaranteed portion of nonperforming loans		4,110			3,293			4,705

Total non-covered nonperforming loans, net of SBA guarantees		34,142			42,225			65,720

Non-covered OREO		144			937			2,993

Total non-covered nonperforming assets, net of SBA guarantees	$	34,286		$	43,162		$	68,713

Performing TDR’s not included above	$	19,894		$	21,377		$	9,811


Nonperforming loans, net of SBA guarantees as a percent of total non-covered loans		2.36	%		2.76	%		4.32	%
Nonperforming assets, net of SBA guarantees as a percent of non-covered loans and OREO		2.37	%		2.82	%		4.50	%
Allowance for loan losses to non-covered nonperforming loans, net of SBA guarantees		149.4	%		123.3	%		92.8	%

The following table provides information on non-covered impaired loans, segregated by class of loans, as of and for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively:


	As of and For the Three Months Ended March 31, 2011
	Recorded Investment ¹⁾		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Real Estate
Construction	$	—	$	—	$	—	$	—	$	—
Commercial - Real Estate		30,959		30,796		—		44,269		56
Commercial
Commercial - Business		8,750		8,706		—		8,793		32
Trade Finance		535		533		—		550		—
SBA		1,568		1,582		—		1,619		18
Others
Consumer		643		643		—		644		1
Other		—		—		—		—		—

Total	$	42,455	$	42,260	$	—	$	55,875	$	107

With an allowance recorded:
Real Estate
Construction	$	5,750	$	5,738	$	1,188	$	5,925	$	—
Commercial - Real Estate		25,322		25,125		4,716		27,141		94
Commercial
Commercial - Business		21,998		21,888		10,431		24,396		178
Trade Finance		805		804		114		1,098		1
SBA		47		48		48		115		—
Others
Consumer		819		814		328		814		1
Other		—		—		—		—		—

Total	$	54,741	$	54,417	$	16,825	$	59,489	$	274


Total
Real Estate
Construction	$	5,750	$	5,738	$	1,188	$	5,925	$	—
Commercial - Real Estate		56,281		55,921		4,716		71,410		150
Commercial
Commercial - Business		30,748		30,594		10,431		33,189		210
Trade Finance		1,340		1,337		114		1,648		1
SBA		1,615		1,630		48		1,734		18
Others
Consumer		1,462		1,457		328		1,458		2
Other		—		—		—		—		—

Total	$	97,196	$	96,677	$	16,825	$	115,364	$	381

1)	Includes unpaid principal balance plus any accrued interest, net deferred fees.


	As of and For the Year Ended December 31, 2010
	Recorded Investment ¹⁾		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Real Estate
Construction	$	3,514	$	3,501	$	—	$	2,841	$	20
Commercial - Real Estate		45,251		45,042		—		53,451		798
Commercial
Commercial - Business		10,277		10,216		—		8,746		277
Trade Finance		—		—		—		80		4
SBA		490		488		—		383		41
Others
Consumer		646		646		—		538		21
Other		—		—		—		—		—

Total	$	60,178	$	59,893	$	—	$	66,039	$	1,161

With an allowance recorded:
Real Estate
Construction	$	2,606	$	2,607	$	223	$	3,289	$	—
Commercial - Real Estate		18,263		18,137		2,126		26,981		659
Commercial
Commercial - Business		13,758		13,649		8,022		6,111		165
Trade Finance		1,219		1,199		633		915		53
SBA		1,275		1,278		310		710		57
Others
Consumer		817		814		329		637		20
Other		—		—		—		—		—

Total	$	37,938	$	37,684	$	11,643	$	38,643	$	954


Total
Real Estate
Construction	$	6,120	$	6,108	$	223	$	6,130	$	20
Commercial - Real Estate		63,514		63,179		2,126		80,432		1,457
Commercial
Commercial - Business		24,035		23,865		8,022		14,857		442
Trade Finance		1,219		1,199		633		995		57
SBA		1,765		1,766		310		1,093		98
Others
Consumer		1,463		1,460		329		1,175		41
Other		—		—		—		—		—

Total	$	98,116	$	97,577	$	11,643	$	104,682	$	2,115

1)	Includes unpaid principal balance plus any accrued interest, net deferred fees.

The following table provides aging information on non-covered past due loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010, respectively:


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables ¹⁾
At March 31, 2011	(Dollars in thousands)
Real Estate
Construction	$	—	$	—	$	5,738	$	5,738	$	8,444	$	14,182
Commercial - Real Estate		3,866		3,161		21,490		28,517		852,206		880,723
Commercial
Commercial - Business		212		1,178		5,263		6,653		269,527		276,180
Trade Finance		—		—		100		100		66,143		66,243
SBA		978		69		5,278		6,325		94,387		100,712
Others
Consumer		796		281		383		1,460		68,239		69,699
Other		—		—		—		—		40,038		40,038

Total	$	5,852	$	4,689	$	38,252	$	48,793	$	1,398,984	$	1,447,777


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables ¹⁾
At December 31, 2010	(Dollars in thousands)
Real Estate
Construction	$	—	$	—	$	6,108	$	6,108	$	8,695	$	14,803
Commercial - Real Estate		4,569		5,023		29,167		38,759		875,244		914,003
Commercial
Commercial - Business		291		1,018		5,696		7,005		308,280		315,285
Trade Finance		254		28		—		282		70,892		71,174
SBA		1,383		1,074		3,896		6,353		95,330		101,683
Others
Consumer		386		177		651		1,214		70,065		71,279
Other		—		—		—		—		40,039		40,039

Total	$	6,883	$	7,320	$	45,518	$	59,721	$	1,468,545	$	1,528,266

1)	Balances represent unpaid principal balance, which approximates recorded investment.

The Company utilizes a risk grading matrix to assign a risk grade to its loan portfolio. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans, excluding homogeneous loans, are individually analyzed by classifying loans as to credit risk and are graded on a scale of 1 to 7 at least on a quarterly basis. A description of the general characteristics of the seven risk grades is as follows:

Grade 1 - This grade includes loans secured by cash or listed securities. The borrowers generally have significant capital strength with unquestionable ability to service the debt.

Grades 2 and 3 - These grades include “pass grade” loans to borrowers of solid or acceptable credit quality and risk. The borrowers generally have sufficient capital strength with highly reliable or adequate primary source of repayment.

Grade 3A - This grade includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers. The borrowers generally experiencing a temporary setback and may have weakening primary source of repayment.

Grade 4 - This grade is for “Special Mentioned” in accordance with regulatory guidelines. This grade includes borrowers that require close credit monitoring. The borrowers generally have inconclusive earnings history and access to alternate sources of financing are limited.

Grade 5 - This grade includes “Substandard” loans in accordance with regulatory guidelines. The borrowers typically have well-defined weaknesses with possibility of payment default or some loss if the weakness is not corrected.

Grade 6 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on non-accrual status and the liquidation of collateral in full is highly questionable or improbable.

Grade 7 - This grade includes “Loss” loans in accordance with regulatory guidelines. Such loans are deemed uncollectible and are to be charged off or charged down. This classification is not intended to imply that the loan or some portion of it will never be paid.

The following table presents the credit risk profile of non-covered loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010, respectively:


	As of March 31, 2011
	Grade 1 - 3A		Grade 4		Grade 5		Grade 6		Total
	(Dollars in thousands)
Non-covered loans ¹⁾
Real estate
Construction	$	7,439	$	—	$	6,743	$	—	$	14,182
Commercial - Real Estate		774,325		41,571		60,009		233		876,138
Commercial
Commercial - Business		211,485		18,190		44,594		1,911		276,180
Trade Finance		63,763		1,105		1,375		—		66,243
SBA		34,197		797		4,624		3		39,621
Others
Consumer		66,674		—		3,025		—		69,699
Other		40,038		—		—		—		40,038

Total	$	1,197,921	$	61,663	$	120,370	$	2,147	$	1,382,101


	As of December 31, 2010
	Grade 1 - 3A		Grade 4		Grade 5		Grade 6		Total
	(Dollars in thousands)
Non-covered loans ¹⁾
Real estate
Construction	$	7,689	$	—	$	7,114	$	—	$	14,803
Commercial - Real Estate		780,479		47,873		71,498		341		900,191
Commercial
Commercial - Business		255,828		18,759		40,080		618		315,285
Trade Finance		68,598		1,100		1,476		—		71,174
SBA		49,416		880		4,956		9		55,261
Others
Consumer		69,598		—		1,681		—		71,279
Other		40,039		—		—		—		40,039

Total	$	1,271,647	$	68,612	$	126,805	$	968	$	1,468,032

1)	Balances represent unpaid principal balance, which approximates recorded investment.

8. COVERED ASSETS AND FDIC LOSS SHARE RECEIVABLE

Covered Loans

Loans acquired in an FDIC-assisted acquisition that are subject to a loss sharing agreement are referred to as “covered loans” and reported separately in the interim consolidated statements of financial condition. Covered loans are reported exclusive of the expected cash flow reimbursements expected from the FDIC.

Acquired loans are valued as of the acquisition date in accordance with FASB ASC 805, Business Combinations. Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. In addition, because of the significant discounts associated with the acquired portfolios, the Company elected to account for all of the acquired loans, with the exception of a small population of loans, under ASC 310-30 in the amount of $125.2 million at acquisition. Certain cash secured loans and overdrafts in the amount of $0.9 million were not accounted for under ASC 310-30. Under ASC 805 and ASC 310-30, loans are recorded at fair value at the acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date.

If credit deterioration is experienced subsequent to the initial acquisition fair value amount, such deterioration of the expected cash flows will be measured, and a provision for loan losses will be charged to earnings. The effect of the provision for loan losses on covered loans will be offset, to the extent of the 80% loss share, by an increase to the FDIC loss share receivable. Any increase in the FDIC loss share receivable will be recognized in non-interest income. Through March 31, 2011, no additional provision for loan losses has been required related to the covered loan portfolio.

The outstanding principal balance of covered loans, excluding fair value adjustments, at March 31, 2011 and December 31, 2010 was $137.9 million and $147.6 million, respectively. The following table presents covered loans inclusive of fair value adjustment, segregated by class of loans, as of March 31, 2011 and December 31, 2010:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
Commercial - Real Estate	$	67,525	$	72,249
Commercial - Business		9,589		8,977
SBA		34,355		35,152
Other		294		915

Total covered loans		111,763		117,293
Less:
ALLL due to decrease in expected cash flows		1,010		1,010

Net covered loans	$	110,753	$	116,283

The following table presents outstanding principal balance and related fair value adjustments of covered loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010:


	March 31, 2011						December 31, 2010
	Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Real Estate:
Construction	$	—			—	%	$	—			—	%
Commercial - Real Estate		70,568			51.2			74,193			50.3
Commercial:
Commercial - Business		16,616			12.0			20,277			13.7
Trade Finance		—			—			—			—
SBA		50,024			36.3			52,681			35.7
Others:
Consumer		693			0.5			486			0.3
Other		—			—			—			—

Total Covered Loans		137,901			100.0			147,637			100.0

Covered loans discount		(26,138	)					(30,344	)

Net valuation of loans		111,763						117,293
Less:
Allowance for losses		1,010						1,010

Total Net Covered Loans	$	110,753					$	116,283

In estimating the fair value of the covered loans at the acquisition date, the Company (i) calculated the contractual amount and timing of undiscounted principal and interest payments and (ii) estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference.

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

The following table presents the carrying amounts for the covered loans as of March 31, 2011 and December 31, 2010, respectively:


	March 31, 2011			December 31, 2010
	(Dollars in thousands)
Undiscounted contractual cash flows	$	155,693		$	165,355
Nonaccretable difference		(31,616	)		(36,107	)

Undiscounted cash flows expected to be collected		124,077			129,248
Accretable difference		(13,618	)		(13,880	)

Covered loans under ASC 310-30		110,459			115,368
Covered loans excluded from ASC 310-30		294			915

Total covered loans	$	110,753		$	116,283

Changes in the carrying amount of covered loans and the accretable yield were as follows for the three months ended March 31, 2011:


	Three months ended March 31, 2011
	Carrying amount of Loans			Accretable Yield
	(Dollars in thousands)
Balance at beginning of period	$	116,283		$	13,880
Acquisition		—			—
Accretion		1,990			(1,990	)
Net payments received		(7,465	)		—
Increase in expected cash flows		—			1,728
Transfer to OREO		(55	)		—

Balance at end of period	$	110,753		$	13,618

Net payment received includes all cash receipts related to the covered loans, net of the disbursements that are required to repurchase the participation sold portion of the SBA loans prior to collecting this guaranteed balance from the SBA.

Credit Quality Indicators—The covered loans acquired are and will continue to be subject to the Bank’s internal and external credit review and monitoring. The covered loans have the same credit quality indicators as the non-covered loans, to enable the monitoring of the borrower’s credit and the likelihood of repayment.

Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes review of all sources of repayment, the borrower’s current financial and liquidity status and all other relevant information. The Company utilizes a seven-grade risk rating system, where a higher grade represents a higher level of credit risk. The seven-grade risk rating system can be generally classified by the following categories: Pass or Watch (Grade 1-3A), Special Mention (Grade 4), Substandard (Grade 5), Doubtful and Loss (Grade 6-7). The risk ratings reflect the relative strength of the sources of repayment.

The following table presents the credit risk profile of covered loans, by class of loans, as of dates indicated:


	As of March 31, 2011
	Grade 1 - 3A		Grade 4		Grade 5		Grade 6		Grade 7		Total
	(Dollars in thousands)
Covered loans ¹⁾
Real estate
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Real Estate		42,425		6,935		12,239		—		—		61,599
Commercial
Commercial - Business		9,973		1,253		4,123		20		—		15,369
Trade Finance		—		—		—		—		—		—
SBA		26,698		182		6,274		118		830		34,102
Others
Consumer		693		—		—		—		—		693
Other		—		—		—		—		—		—

Total Covered Loans	$	79,789	$	8,370	$	22,636	$	138	$	830	$	111,763


	As of December 31, 2010
	Grade 1 - 3A		Grade 4		Grade 5		Grade 6		Grade 7		Total
	(Dollars in thousands)
Covered loans ¹⁾
Real estate
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Real Estate		42,374		7,317		13,574		235		—		63,500
Commercial
Commercial - Business		12,851		1,828		3,422		206		—		18,307
Trade Finance		—		—		—		—		—		—
SBA		28,412		266		4,902		399		1,021		35,000
Others
Consumer		486		—		—		—		—		486
Other		—		—		—		—		—		—

Total Covered Loans	$	84,123	$	9,411	$	21,898	$	840	$	1,021	$	117,293

1)	Balances represent unpaid principal balance, net of discount, and excludes accrued interest.

Covered OREO

All OREO acquired in FDIC-assisted acquisitions that are subject to a FDIC loss sharing agreement is referred to as “covered OREO” and reported separately in the consolidated statements of financial condition. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the loan’s fair value, inclusive of the acquisition date fair value discount.

Covered OREO was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to non-interest expense, and will be offset, in part, by non-interest income representing the corresponding increase to the FDIC loss share receivable. Any recoveries of previous valuation adjustments will be credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.

The activities related to the covered OREO for the three months ended March 31, 2011 are as follows:


	Three months ended March 31, 2011
	(Dollars in thousands)
Balance at beginning of period	$	1,459
Acquisition		—
Additions to covered OREO		55
Fair value adjustment during the period		(109	)
Dispositions of covered OREO		—

Balance at end of period	$	1,405

Covered Nonperforming Assets

Covered nonperforming assets totaled $15.7 million at March 31, 2011 as compared to $16.5 million at December 31, 2010. These covered nonperforming assets are subject to loss sharing agreement with the FDIC. The covered nonperforming assets at March 31, 2011 and December 31, 2010 are as follows:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
Covered loans on non-accrual status	$	14,273	$	15,021
Covered other real estate owned		1,405		1,459

Total covered nonperforming assets	$	15,678	$	16,480

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete the accretable discount to interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.

FDIC Loss Share Receivable

The Company has elected to account for amounts receivable under the loss sharing agreement with the FDIC as FDIC loss share receivable in accordance with FASB ASC 805, Business Combinations. The FDIC loss share receivable was initially recorded at fair value, based on the discounted value of expected future cash flows under the loss sharing agreement. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into non-interest income over the life of the FDIC loss share receivable.

The FDIC loss share receivable is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in the cash flows of the covered assets over those expected will reduce the FDIC loss share receivable and any decreases in cash flows of the covered assets under those expected will increase the FDIC loss share receivable. Increases and decreases to the FDIC loss share receivable are recorded as adjustments to non-interest income.

The FDIC loss share receivable was determined to be $25.3 million at the acquisition date. Changes in the FDIC loss share receivable for the three months ended March 31, 2011 are as follows:


	Three months ended March 31, 2011
	(Dollars in thousands)
Balance at beginning of period	$	23,991
Acquisition		—
Payment received from FDIC		(2,191	)
Accretion		49

Balance at end of period	$	21,849

9. NON-COVERED OTHER REAL ESTATE OWNED (OREO)

The Company had two non-covered OREO properties valued at $144,000 as of March 31, 2011. The changes in non-covered other real estate owned for the three months ended March 31, 2011 and 2010 are as follows:


	Three months ended March 31,
	2011			2010
	(Dollars in thousands)
Balance at beginning of period	$	937		$	4,278
Acquisition due to foreclosures at fair value		90			—
Disposition due to sales		(882	)		(405	)
Valuation Adjustment subsequent to foreclosures		(1	)		(779	)
Transfer to other receivable		—			(101	)

Balance at end of period	$	144		$	2,993

10. OTHER INTANGIBLE ASSETS

In April 2010, the Company recorded a core deposit intangible of $510,000 for the acquisition of Innovative Bank. The Company amortizes premiums on acquired deposits using the straight-line method over 7 to 9 years. The Company’s amortization expense for core deposit intangible was $15,000 for the three months ended March 31, 2011 resulting in a core deposit intangible net of amortization of $449,000 at March 31, 2011. Estimated amortization expense for five succeeding fiscal years is as follows:


	Amount
Year	(Dollars in thousands)
2011 (remaining 9 months)	$	47
2012		62
2013		62
2014		62
2015		62
2016 and thereafter		154

Total	$	449

11. OTHER BORROWED FUNDS

The Company borrows funds from the Federal Home Loan Bank of San Francisco (“FHLB”) and the Treasury, Tax, and Loan Investment Program. Other borrowed funds totaled $167.7 million and $188.7 million at March 31, 2011 and December 31, 2010, respectively. Interest expense on other borrowed funds was $1.5 million and $1.6 million for the three months ended March 31, 2011 and 2010, respectively, reflecting average interest rates of 3.72% and 4.39%. The following table represents the composition of other borrowed funds as of dates indicated:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
FHLB	$	166,811	$	167,213
US Treasury		938		963
Secured financing - SBA loan transfer		—		20,494

Total other borrowed funds	$	167,749	$	188,670

As of March 31, 2011, the Company had outstanding borrowings of $166.8 million from the FHLB with original maturity terms ranging from 4 years to 15 years. Advances of 10-year and 15-year terms are amortizing at predetermined schedules over the life of the advances. Of the $166.8 million outstanding, $145.0 million is composed of six fixed rate term advances, each with an option to be called by the FHLB after the original lockout dates varying from 6 months to 2 years. If market interest rates are higher than the advances’ stated rates at that time, the advances will be called by the FHLB and the Bank will be required to repay the FHLB. If market interest rates are lower after the lockout period, then the advances will not be called by the FHLB. If the fixed rate term advances are not called by the FHLB, they will mature at maturity dates ranging from 4 years to 10 years. The Company may repay the advances with a prepayment penalty at any time. If the advances are called by the FHLB, there is no prepayment penalty.

The Company has pledged, under a blanket lien, all qualifying commercial and residential loans as collateral under the borrowing agreement with the FHLB, with a total carrying value of $857.8 million at March 31, 2011 as compared to $828.0 million at December 31, 2010.

Subject to the right of the FHLB to require early repayment of the borrowings discussed above, FHLB advances outstanding, with an average interest rate of 4.46%, as of March 31, 2011, mature as follows:


	Amount
Year	(Dollars in thousands)
2011 (remaining 9 months)	$	40,621
2012		105,389
2013		157
2014		167
2015		176
2016 and thereafter		20,301

Total	$	166,811

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 U.S. government agencies and/or mortgage-backed securities with a total carrying value of $1.4 million at March 31, 2011, as collateral to participate in the program as compared to $1.5 million at December 31, 2010. The total borrowed amount under the program, outstanding at March 31, 2011 and December 31, 2010 was $938,000 and $963,000, respectively.

As of December 31, 2010, the Company had SBA loans transferred of $24.5 million which were accounted for as a secured financing pursuant to ASC 860, Transfers and Servicing. At that time, SBA loan transfers were subject to a 90-day recourse provision and, therefore, were not considered sold until the recourse period expired. However, during the first quarter of 2011, SBA removed the recourse provision from the standard transfer agreement. As such, all of the SBA loan transfers executed are qualified as sales, thus, are not accounted for as secured financing.

12. LONG-TERM SUBORDINATED DEBENTURES

Center Capital Trust I is a Delaware business trust formed by the Company for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. During the fourth quarter of 2003, Center Capital Trust I issued 18,000 Capital Trust Preferred Securities (“TP Securities”), with liquidation value of $1,000 per security, for gross proceeds of $18,000,000. The entire proceeds of the issuance were invested by Center Capital Trust I in $18,000,000 of Junior Long-term Subordinated Debentures (the “Subordinated Debentures”) issued by the Company, with identical maturity, repricing and payment terms as the TP Securities. The Subordinated Debentures represent the sole assets of Center Capital Trust I. The Subordinated Debentures mature on January 7, 2034, with interest based on 3-month LIBOR plus 2.85%, with repricing and payments due quarterly in arrears on January 7, April 7, July 7, and October 7 of each year commencing April 7, 2004. The Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any January 7th, April 7th, July 7th, and October 7th on or after April 7, 2009 at the Redemption Price. Redemption Price means 100% of the principal amount of Subordinated Debentures being redeemed plus accrued and unpaid interest on such Subordinated Debentures to the Redemption Date, or in case of redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Redemption Date is on or after April 7, 2009. The TP Securities are subject to mandatory redemption to the extent of any early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on January 7, 2034.

Holders of the TP Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security at a current rate per annum of 3.15%. Interest rate defined as per annum rate of interest, resets quarterly, equal to LIBOR immediately preceding each interest payment date (January 7, April 7, July 7, and October 7 of each year) plus 2.85%.

The distributions on the TP Securities are treated as interest expense in the consolidated statements of operations. The Company has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures. The TP Securities issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TP Securities.

On March 1, 2005, the FRB adopted a final rule that allows the continued inclusion of trust-preferred securities in the Tier I capital of bank holding companies. However, under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier I capital elements. In addition, since the Company had less than $15 billion in assets at December 31, 2009, under the Dodd-Frank Act, the Company will be able to include its existing TP Securities in Tier 1 capital to the extent permitted by FRB guidelines. As of March 31, 2011, trust preferred securities comprised 6.10% of the Company’s Tier I capital.

Center Capital Trust I is not reported on a consolidated basis in accordance with ASC 810, Consolidation. Therefore, the capital securities of $18,000,000 do not appear on the consolidated statement of financial condition. Instead, the long-term subordinated debentures of $18,557,000 payable by Center Financial to the Center Capital Trust I and the investment in the Center Capital Trust I’s common stock of $557,000 (included in other assets) are separately reported.

13. COMMITMENTS AND CONTINGENCIES

Off-Balance-Sheet Risk

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 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 March 31, 2011 and December 31, 2010 follows:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
Loans	$	194,694	$	158,828
Standby letters of credit		26,178		27,931
Commercial letters of credit		35,970		30,341
Performance bonds		211		222

Liabilities for losses on outstanding commitments of $278,000 and $244,000, respectively, were reported separately in other liabilities at March 31, 2011 and December 31, 2010.

Litigation

From time to time, the Company is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel as to the current status of these claims and proceedings, management does not believe that the aggregate potential liability resulting from such proceedings would have a material adverse effect on the Company’s financial condition or results of operations.

14. STOCK-BASED COMPENSATION

The Company has a Stock Incentive Plan which was adopted by the Board of Directors in April 2006, approved by the shareholders in May 2006, and amended by the Board in June 2007 (the “2006 Plan”). The 2006 Plan provides for the granting of incentive stock options to officers and employees, and non-qualified stock options and restricted stock awards to

employees (including officers) and non-employee directors. The 2006 Plan replaced the Company’s former stock option plan (the “1996 Plan”) which expired in February 2006, and all options under the 1996 Plan which were outstanding on April 12, 2006 were transferred to and made part of the 2006 Plan. The option prices of all options granted under the 2006 Plan (including options transferred from the 1996 Plan) must be not less than 100% of the fair market value at the date of grant. All options granted generally vest at the rate of 20% per year. All options not exercised generally expire ten years after the date of grant. Vesting of restricted stock awards (“RSAs”) is discretionary with the Board of Directors or the Compensation Committee, but awards granted to date generally vest at the rate of 50% on the third anniversary of the grant date and 25% per year for the next two years. RSAs granted to senior executive officers are also subject to restrictions on transfer even after vesting for as long as the Company has preferred stock outstanding to the U.S. Treasury Department pursuant to the TARP Capital Purchase Program.

The Company’s pre-tax stock-based compensation expense for employees and directors was $138,000 and $235,000 ($129,000 and $182,000 after tax effect of non-qualified stock options) for the three months ended March 31, 2011 and 2010, respectively.

Stock Option Awards

The fair value of the stock options granted was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions including risk-free interest rate, expected life, expected volatility and expected dividend yield. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. Beginning in 2006, the expected life (estimated period of time outstanding) of options granted with a 10-year term was determined using the average of the vesting period and term. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life, ending on the day of grant, and calculated on a weekly basis. These assumptions are utilized in the calculation of the compensation expenses. The expenses are the result of previously granted stock options and those awarded, if any, during the three months ended March 31, 2011 and 2010, respectively. No stock options were granted during the three months ended March 31, 2011 and 2010.

A summary of the Company’s stock option activity and related information for the three months ended March 31, 2011 and 2010 is set forth in the following table:


			Outstanding Options
	Shares Available For Grant		Number of Shares			Weighted Average Exercise Price
Balance at December 31, 2010		2,335,013		691,844		$	16.95
Options granted		—		—			—
Options forfeited		108,500		(108,500	)		22.04
Options exercised		—		—			—

Balance at March 31, 2011		2,443,513		583,344			16.01


Balance at December 31, 2009		2,266,612		760,245		$	16.93
Options granted		—		—			—
Options forfeited		3,000		(3,000	)		17.00
Options exercised		—		—			—

Balance at March 31, 2010		2,269,612		757,245			16.93

The stock options as of March 31, 2011 have been segregated into three ranges for additional disclosure as follows:


						Options Outstanding						Options Exercisable
Range of Exercise Prices						Options Outstanding		Weighted- Average Remaining Contractual Life in Years		Weighted- Average Exercise Price		Options Exercisable		Weighted- Average Remaining Contractual Life in Years		Weighted- Average Exercise Price
	$	2.59	-	$	8.00		52,744		4.88	$	5.02		40,411		3.91	$	5.14
	$	8.01	-	$	20.00		449,600		5.69		16.05		372,000		5.57		16.02
	$	20.01	-	$	25.10		81,000		5.43		22.94		70,100		5.36		23.02

As of March 31, 2011							583,344		5.58		16.01		482,511		5.40		16.12

	$	2.59	-	$	8.00		52,745		5.88	$	5.02		31,078		3.71	$	5.26
	$	8.01	-	$	20.00		518,500		6.66		16.12		305,801		6.27		15.77
	$	20.01	-	$	25.10		186,000		6.58		22.56		157,900		6.61		22.52

As of March 31, 2010							757,245		6.59		16.93		494,779		6.22		17.26

The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2011 was $84,000 compared to $0 at March 31, 2010. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $7.34 and $4.85 as of March 31, 2011 and 2010, respectively, and the exercise price multiplied by the number of options outstanding. No options were exercised during the three months ended March 31, 2011 and 2010. Total fair value of vested options was $2.9 million and $416,000 as of March 31, 2011 and 2010, respectively. The number of options that were not vested as of March 31, 2011 and 2010 was 100,833 and 262,466, respectively.

As of March 31, 2011 and 2010, the Company had approximately $623,000 and $792,000 of unrecognized compensation costs related to unvested options, respectively, which are expected to be recognized over a weighted average period of 1.27 years and 2.12 years, respectively.

Restricted Stock Awards

Restricted stock activity under the 2006 Plan as of and changes during the three months ended March 31, 2011 and 2010 are as follows:


	Three Months Ended March 31, 2011					Three Months Ended March 31, 2010
	Number of Shares			Weighted-Average Grant-Date Fair Value per Share		Number of Shares			Weighted-Average Grant-Date Fair Value per Share
Restricted Stock:
Nonvested, beginning of period		76,809		$	5.77		10,050		$	13.59
Granted		23,079			7.65		50,909			5.07
Vested		(15,275	)		7.72		—			—
Cancelled and forfeited		(29,251	)		5.44		(150	)		8.65

Nonvested, at end of period		55,362			6.19		60,809			6.47

The Company recorded compensation cost of $38,000 and $16,000, respectively, related to the restricted stock granted under the 2006 Plan for the three months ended March 31, 2011 and 2010. At March 31, 2011 and 2010, the Company had approximately $341,000 and $204,000 of unrecognized compensation costs related to unvested restricted stock, respectively. The costs are expected to be recognized over a weighted-average period of 3.22 years and 2.28 years as of March 31, 2011 and 2010, respectively.

15. COMMON AND PREFERRED STOCK CASH DIVIDENDS

On March 25, 2009, the Company’s board of directors suspended its quarterly cash dividends on the Company’s common stock based on adverse economic conditions and the Company’s then recent losses. The board of directors determined that this is a prudent, safe and sound practice to preserve capital, and does not expect to resume the payment of cash dividends in the foreseeable future. Unless the preferred stock issued to the Treasury Department in the TARP Capital Purchase Program has been redeemed, the Company will not be permitted to resume paying cash dividends without the consent of the Treasury Department until December 2011. In addition, the Bank and the Company have each entered into Informal Regulatory Agreements with the respective regulatory agency or agencies, pursuant to which both the Bank and the Company must obtain prior regulatory approval to pay dividends.

The Company paid a preferred stock dividend of $688,000 on February 15, 2011 and accrued for the preferred stock dividends of $344,000 at March 31, 2011 which will be included in the next payment scheduled on May 15, 2011.

16. PREFERRED STOCK AND COMMON STOCK WARRANTS

The Company entered into Securities Purchase Agreements with a limited number of institutional and other accredited investors, including insiders, to sell a total of 73,500 shares of mandatorily convertible non-cumulative non-voting perpetual preferred stock, series B, without par value (the “Series B Preferred Stock”) at a price of $1,000 per share, for an aggregate gross purchase price of $73.5 million. This private placement closed on December 31, 2009, and the Company issued an aggregate of 73,500 shares of Series B Preferred Stock upon its receipt of consideration in cash. The Series B Preferred Stock converted into 19,599,981 million shares of common stock effective March 29, 2010, following shareholder approval of such conversion. The conversion ratio was equal to the quotient obtained by dividing the $1,000 per share purchase price by the conversion price of $3.75. The shares issued in this private placement were registered on a Form S-3 Registration Statement, as amended, which became effective April 8, 2010, thus removing the restrictions on resale.

The conversion price of $3.75 per share was less than the fair value of $5.23 per share of our common stock on December 29, 2009, the commitment date for the issuance of the Series B Preferred Stock. The Series B Preferred Stock was thus issued with a beneficial conversion feature with an intrinsic value of $1.48 per share or at a discount of $29.0 million. On the effective date of the conversion, the unamortized discount due to the beneficial conversion feature was immediately recognized as a dividend and accounted for as a charge to retained earnings and a reduction of net income available to common shareholders in the earnings per share computation.

The Company also issued 3,360,000 shares of common stock in a private placement which closed on November 30, 2009 (the “November Private Placement”), at a price per share of $3.71 to non-affiliated investors and $4.69 to certain directors and employees of the Company. The difference in the purchase price was necessary to comply with NASDAQ Listing Rule 5635(c). The Company obtained shareholder approval of the November Private Placement at a special meeting held on March 24, 2010 so that all investors in the November Private Placement could be treated equally. Following receipt of shareholder approval, 85,045 additional shares were issued to the directors and employees who invested in the November Private Placement, in order to effectuate this result. The shares issued in the November Private Placement were also registered on a Form S-3 Registration Statement which became effective April 8, 2010, thus removing the restrictions on resale.

The Company entered into a purchase agreement with the U.S. Treasury Department on December 12, 2008, pursuant to which the Company issued and sold 55,000 shares of the Company’s fixed-rate cumulative perpetual preferred stock for a total purchase price of $55.0 million, and a 10-year warrant to purchase 864,780 shares of the Company’s common stock at an exercise price of $9.54 per share. The number of shares underlying the Warrant was reduced to 432,390 effective December 31, 2009 as a result of the fourth quarter capital raises described above. The Company will pay the U.S. Treasury Department a five percent dividend annually for each of the first five years of the investment and a nine percent dividend thereafter until the shares are redeemed. The cumulative dividend for the preferred stock is accrued for and payable on February 15, May 15, August 15 and November 15 of each year.

The Company allocated total proceeds of $55.0 million, based on the relative fair value of preferred stock and common stock warrants, to preferred stock for $52.9 million and common stock warrants for $2.1 million, respectively, on December 12, 2008. The preferred stock discount is being accreted, on an effective yield method, to preferred stock over 10 years.

17. EARNINGS (LOSS) PER COMMON SHARE

Common stock outstanding at March 31, 2011 totaled 39,914,686 shares. The following table sets forth the Company’s earnings (loss) per common share calculation for the three months ended March 31, 2011 and 2010, respectively:


	Three Months Ended March 31,
	2011								2010
	(Dollars in thousands, except earnings per share)
	Net Income			Average Number of Shares		Per Share Amounts			Net (Loss)			Average Number of Shares		Per Share Amounts
Basic earnings (loss) per share
Net income	$	4,885			39,826	$	0.12		$	2,767			21,286	$	0.13
Less : preferred stock dividends and accretion of preferred stock discount		(750	)		—		(0.02	)		(29,752	)		—		(1.40	)

Income (loss) available to common shareholders		4,135			39,826		0.10			(26,985	)		21,286		(1.27	)
Effect of dilutive securities:
Stock options and restricted stock awards		—			72		—			—			—		—

Diluted earnings (loss) per share
Income (loss) available to common shareholders	$	4,135			39,898	$	0.10		$	(26,985	)		21,286	$	(1.27	)

The number of common shares underlying stock options which were outstanding but not included in the calculation of diluted earnings (loss) per share because they would have had an anti-dilutive effect amounted to approximately 31,000 and 750,000 shares for the three months ended March 31, 2011 and 2010, respectively.

18. INCOME TAXES

The income tax provision amounted to $0.5 million and $1.5 million for the three months ended March 31, 2011 and 2010 representing effective tax rates of 9.4% and 35.0%, respectively. The primary reasons for the difference from the federal statutory tax rate of 35% are the reduction in the valuation allowance for deferred taxes, the inclusion of state taxes and reductions related to tax favored investments in low-income housing, dividend exclusions, treatment of share-based payments amortization, an increase in cash surrender value of bank owned life insurance, California enterprise zone interest deductions and hiring credits, and nondeductible merger costs. The Company reduced taxes utilizing the tax credits from investments in the low-income housing projects in the amount of $353,000 and $283,000 for the three months ended March 31, 2011 and 2010, respectively.

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 returns. The Company’s net deferred tax assets were $14.6 million, net of a valuation allowance of $9.1 million at March 31, 2011, and $14.4 million, net of a valuation allowance of $10.7 million at December 31, 2010. The reduction in the valuation allowance reduced income tax expense by $1.5 million for the three months ended March 31, 2011 as compared to an increase by $172,000 during the same period in 2010. The large reduction in 2011 is primarily due to the pre-tax profit generated for the quarter ended March 31, 2011, which increased the cumulative taxable income available for carry-back for federal income tax purpose. As of March 31, 2011, the Company’s deferred tax assets were primarily due to the allowance for loan losses which was partially offset by a bargain purchase gain.

In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax-planning strategies in making this assessment.

The Internal Revenue Service (the “IRS”) and the Franchise Tax Board (the “FTB”) have examined the Company’s consolidated federal income tax returns for tax years up to and including 2007. As of March 31, 2011, the Company was under examination by the FTB for the 2005-2007 tax years and there is no open examination by the IRS. The Company does not anticipate any material changes as a result of the FTB examination. The Company has provided for additional Franchise taxes associated with this exam in the amount of $325,000. In addition, the Company does not have any unrecognized tax benefits subject to significant increase or decrease as a result of uncertainty.

19. FAIR VALUE MEASUREMENTS

Fair Values of Financial Instruments

The Company, using available market information and appropriate valuation methodologies available to management at March 31, 2011 and December 31, 2010, has determined the estimated fair value of financial instruments. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Furthermore, fair values do not reflect any premium or discount that may result from offering the instruments for sale. Potential taxes and other expenses that would be incurred in an actual sale or settlement are not reflected.

The estimated fair values and related carrying amounts of the Company’s financial instruments as of March 31, 2011 and December 31, 2010 are as follows:


	March 31, 2011				December 31, 2010
	Carrying or Contract Amount		Estimated Fair Value		Carrying or Contract Amount		Estimated Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	317,815	$	317,815	$	258,920	$	258,920
Investment securities available for sale		312,336		312,336		289,551		289,551
Non-covered loans held for sale, at the lower of cost or fair value		65,677		66,898		60,234		61,162
Federal Home Loan Bank and other equity stock		14,426		14,426		15,019		15,019
Non-covered loans, net		1,330,122		1,427,194		1,415,646		1,522,475
Covered loans, net		110,753		110,753		116,283		116,283
FDIC loss share receivable		21,849		21,849		23,991		23,991
Customers’ liability on acceptances		1,819		1,819		2,287		2,287
Accrued interest receivable		5,489		5,489		5,509		5,509
Income tax receivable		13,298		13,298		14,277		14,277

Liabilities:
Deposits		1,779,606		1,730,077		1,770,994		1,727,320
Other borrowed funds		167,749		175,399		188,670		197,781
Acceptances outstanding		1,819		1,819		2,287		2,287
Accrued interest payable		4,771		4,771		5,113		5,113
Long-term subordinated debentures		18,557		14,479		18,557		14,452
Accrued expenses and other liabilities		11,625		11,625		10,646		10,646

Off-balance sheet items:
Commitments to extend credit		194,694		249		158,828		204
Standby letter of credit		26,178		392		27,931		418
Commercial letters of credit		35,970		135		30,341		114
Performance bonds		211		3		222		3

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate as follows:

Cash and Cash Equivalents—The carrying amounts approximate fair value due to the short-term nature of these instruments.

Securities—The fair value of securities is generally determined by quoted market prices and the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and combinations of these approaches for its valuation methods are used depending on the asset class.

Non-covered Loans—Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The fair values of fixed rate loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing of similar fixed rate loans, as well as anticipated repayment schedules. The fair value of adjustable rate loans is based on the estimated discounted cash flows utilizing the discount rates that approximate the pricing of loans collateralized by similar properties or assets. The estimated fair value is net of allowance for loan losses, deferred loan fees, and deferred gain on SBA loans.

Covered Loans—Covered loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value.

Federal Home Loan Bank and Pacific Coast Bankers Bank stock—The carrying amounts approximate fair value, as the stocks may be sold back to the Federal Home Loan Bank and other bank at carrying value.

FDIC Loss Share Receivable— The fair value of FDIC loss share receivable is based on the discounted value of expected future cash flows under the loss sharing agreement with the FDIC.

Accrued Interest Receivable and Accrued Interest Payable—The carrying amounts approximate fair value due to the short-term nature of these assets and liabilities.

Customer’s Liability on Acceptances and Acceptances Outstanding—The carrying amounts approximate fair value due to the short-term nature of these assets.

Deposits—The fair value of nonmaturity deposits is the amount payable on demand at the reporting date. Nonmaturity deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts, and money market accounts. Discounted cash flows have been used to value term deposits such as certificates of deposit. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Other Borrowed Funds—These funds mostly consist of FHLB advances. The fair values of FHLB advances are estimated based on the discounted value of contractual cash flows, using rates currently offered by the Federal Home Loan Bank of San Francisco for fixed-rate credit advances with similar remaining maturities.

Long-term Subordinated Debentures—The fair value of long-term subordinated debentures are estimated by discounting the cash flows through maturity based on prevailing rates offered on the 30-year Treasury bonds.

Loan Commitments, Letters of Credit, and Performance Bond—The fair value of loan commitments, standby letters of credit, commercial letters of credit and performance bonds is estimated using the fees currently charged to enter into similar agreements.

Fair Value Measurement – Three Levels

Fair value is measured in accordance with a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follow:


• Level 1 –		inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 –		inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 –		inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Assets

Securities Available for Sale

U.S. Treasury—The Company measures fair value of these securities by using quoted market prices, a level 1 measurement.

U.S. Governmental agencies securities and U.S. Governmental sponsored enterprise securities—The Company measures fair value of these securities by using quoted market prices for similar securities or dealer quotes, a level 2 measurement.

U.S. Governmental agencies securities and U.S. Governmental sponsored enterprise mortgage-backed securities—The Company measures fair value of these securities by using quoted market prices for similar securities or dealer quotes, a level 2 measurement.

Mutual funds backed by adjustable rate mortgages—The Company measures fair value of residential mortgage-backed securities by using quoted market prices for similar securities or dealer quotes, a level 2 measurement.

Fixed rate collateralized mortgage obligations—The Company measures fair value of collateralized mortgage obligations by using quoted market prices for similar securities or dealer quotes, a level 2 measurement.

Corporate trust preferred security—The Company owns one collateralized debt obligation (“CDO”) security that is backed by trust preferred securities (“TRUPS”) issued by banks and thrifts. The Company measures the fair value of the CDO TRUPS security by using a Level 3 fair value measurement.

Non-covered SBA Loans held for sale- Loans held for sale are measured at the lower of cost or fair value. As of March 31, 20111 and December 31, 2010, the Company had $61.1 million and $46.4 million of SBA loans held for sale, respectively. Management obtains quotes, bids or pricing indication sheets on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At March 31, 2011 and December 31, 2010, the entire balance of loans held for sale was recorded at its cost. The Company records non-covered SBA loans held for sale on a nonrecurring basis with Level 2 inputs.

Non-covered Nonperforming loans held for sale- The Company reclassifies certain nonperforming loans when the decision to sell those loans is made. The fair value of nonperforming loans held for sale is generally based upon the quotes, bids or sales contract price which approximate the fair value. Nonperforming loans held for sale are recorded at estimated fair value less anticipated liquidation cost. As of March 31, 2011 and December 31, 2010, the Company had $4.6 million and $13.8 million of nonperforming loans held for sale, respectively. The Company measures nonperforming loans held for sale at fair value on a nonrecurring basis with Level 3 inputs.

Impaired loans- A loan is considered impaired when it is probable that all of the principal and interest due may not be collected according to the original underwriting terms of the loan. Impaired loans are measured at the lower of its carrying value or at an observable market price if available or at the fair value of the loan’s collateral if the loan is collateral dependent. Fair value of the loan’s collateral when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost associated with liquidating the collateral. The Company measures impaired loans at fair value on a nonrecurring basis with Level 3 inputs.

Non-covered Other Real Estate Owned (OREO)- Non-covered OREO is transferred at fair value and is carried at the lower of its carrying value or its fair value less anticipated disposal cost. Fair value of the non-covered OREO is determined by appraisals or independent valuation, which is then adjusted for the cost associated with liquidating the property. The Company measures non-covered OREO at fair value on a nonrecurring basis with Level 3 inputs.

Covered OREO- Covered OREO was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to non-interest expense, and will be offset, in part, by non-interest income representing the corresponding increase to the FDIC loss share receivable. Any recoveries of previous valuation adjustments will be credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC. The Company measures covered OREO at fair value on a nonrecurring basis with Level 3 inputs.

Assets measured at fair value on a recurring basis by class at March 31, 2011 and December 31, 2010 are as follows:


Assets measured at fair value on a recurring basis	Total as of 3/31/2011		Fair Value Measurements at Reporting Date Using
	Total as of 3/31/2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury	$	300	$	300	$	—	$	—
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		45,715		—		45,715		—
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		175,664		—		175,664		—
Corporate trust preferred security		752		—		—		752
Mutual Funds backed by adjustable rate mortgages		5,054		—		5,054		—
Fixed rate collateralized mortgage obligations		84,851		—		84,851		—

Total available-for-sale securities	$	312,336	$	300	$	311,284	$	752


	Total as of 12/31/2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury	$	300	$	300	$	—	$	—
U.S. Governmental agencies and U.S. Government sponsored enterprise securities		58,607		—		58,607		—
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		157,099		—		157,099		—
Corporate trust preferred security		759		—		—		759
Mutual Funds backed by adjustable rate mortgages		5,073		—		5,073		—
Fixed rate collateralized mortgage obligations		67,713		—		67,713		—

Total available-for-sale securities	$	289,551	$	300	$	288,492	$	759

The following table presents the Company’s reconciliation and statement of operations classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2011 and 2010, respectively.


	Three months ended March 31,
	2011			2010
	(Dollars in thousands)
Balance, beginning of period	$	759		$	2,404
Purchases, Issuances and Settlements		—			—
Gain (Loss) in Earnings (Expenses)		—			—
Gain (Loss) in Other Comprehensive Income		(7	)		—
Transfer in/out of Level 3		—			(192	)

Balance, end of period	$	752		$	2,212

The Company transfers its assets and liabilities measured at fair value to a different hierarchy when the valuation techniques and inputs used to develop fair value measurements change. Such transfers are recognized at the end of each quarterly period.

The following table presents the aggregated balance of assets measured at estimated fair value on a nonrecurring basis as of March 31, 2011 and 2010 and the total losses resulting from these fair value adjustments for the three months ended March 31, 2011 and 2010:


	As of March 31, 2011
	Level 1		Level 2		Level 3		Total		Total Losses
	(Dollars in thousands)
SBA Loans held for sale	$	—	$	706	$	—	$	706	$	79
Nonperforming Loans held for sale		—		—		4,585		4,585		890
Impaired Loans		—		—		67,154		67,154		7,666
Non-covered OREO		—		—		54		54		1

Total	$	—	$	706	$	71,793	$	72,499	$	8,636


	As of March 31, 2010
	Level 1		Level 2		Level 3		Total		Total Losses
	(Dollars in thousands)
SBA Loans held for sale	$	—	$	—	$	—	$	—	$	—
Impaired Loans		—		—		34,645		34,645		7,551
Non-covered OREO		—		—		2,288		2,288		779

Total	$	—	$	—	$	36,933	$	36,933	$	8,330

Liabilities

The Company did not identify any liabilities that are required to be presented at fair value.

Item 2:

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

Overview

The following is management’s discussion and analysis of the major factors that influenced the Company’s consolidated results of operations for the three months ended March 31, 2011 and 2010 and financial condition as of March 31, 2011 and December 31, 2010. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2010 and with the unaudited interim 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 of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward looking statements. 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, many of which are difficult to predict and are generally beyond the control of the Company. Risks and uncertainties include, but not limited to, possible future deteriorating economic conditions in the Company’s areas of operation; 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; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risks of available-for-sale securities declining significantly in value as interest rates rise or issuers of such securities suffer financial losses; increased competition among depository institutions; the successful integration and operations of the FDIC-assisted acquisition; the company’s ability to sustain profitable operations; the company’s ability to capitalize on strategic growth opportunities; and the company’s ability to enhance its earnings capacity; the economic and regulatory effects of the continuing war on terrorism and other events of war, including the wars in Iraq and Afghanistan; the effect of natural disasters, including earthquakes, fires and hurricanes; 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 “Risk Factors”; and “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, as amended, for the year ended December 31, 2010, as supplemented by the information contained in this report.

Critical Accounting Policies

Accounting estimates and assumptions are those that the Company considers to be the most critical to an understanding of the Company’s financial statements because they inherently involve significant judgments and uncertainties. The financial information contained in 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. These critical accounting policies are those that involve subjective decisions and assessments and have the greatest potential impact on the Company’s results of operations. Actual performance that differs from the Company’s estimates and future changes in the key variables could change future valuations and impact net income. There was no significant changes to the Company’s critical accounting policies discussed in the Form 10-K, as amended, for the year ended December 31, 2010.

Recent Developments

Merger Agreement with Nara Bancorp

On December 9, 2010, Center Financial and Nara Bancorp, Inc. (“Nara Bancorp”) entered into a definitive agreement to merge. Under the terms of the merger agreement, Center Financial shareholders will receive a fixed ratio of 0.7804 of a share of Nara Bancorp common stock in exchange for each share of Center Financial common stock they own. At the closing date of merger, Nara Bancorp shareholders will own approximately 55% of the combined company and Center Financial shareholders will own approximately 45%. The combined company will operate under a new name that will be determined prior to the closing. In addition, at the closing or as soon as possible thereafter, it is anticipated that Nara Bank, a California state-chartered bank and a wholly owned subsidiary of Nara Bancorp, will merge with and into the Bank, with the Bank as the surviving bank after the bank merger.

The boards of directors of both companies have unanimously approved the transaction. The transaction is subject to regulatory approval, the approval of the shareholders of both Center Financial and Nara Bancorp, and other customary closing conditions. We anticipate that the regulatory approval process will take several months and, therefore, do not expect to complete the merger before the second half of 2011. There is no assurance, however, that the bank regulators will approve the merger within our anticipated time frame, or at all.

Please see our current report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 9, 2010 for a more complete description of the merger agreement. In addition, in connection with the proposed merger, Nara Bancorp filed with the SEC a Registration Statement on Form S-4 that includes a Joint Proxy Statement/Prospectus of Center Financial and Nara Bancorp, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You may obtain a free copy of the Joint Proxy Statement/Prospectus, as well as other filings containing information about Center Financial and Nara Bancorp at the SEC’s Internet site (www.sec.gov). You may also obtain these documents, free of charge, from Center Financial at www.centerbank.com under the tab “Investor Relations” and then under the heading “SEC Filings”.

Informal Regulatory Agreements

Effective December 28, 2010, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and the DFI replacing the previous MOU dated December 18, 2009. The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to facilitate improvement in its financial condition. In accordance with the MOU, the Bank agreed among other things to (a) develop and implement strategic plans to restore profitability; (b) maintain a Leverage Capital Ratio of not less than 9% and a Total Risk-Based Capital Ratio of not less than 13%; (c) refrain from paying dividends without prior written regulatory approval; (d) eliminate all or half its assets classified “Loss” or “Doubtful”; (e) reduce the combined total of assets classified “Substandard” or “Doubtful” to not more than 40% of Tier 1 Capital plus the allowance for loan and lease losses (“ALLL”); (f) develop and implement certain specified policies and procedures relating to the asset disposition plan for certain classified assets, loan impairment and note sale transactions; (g) notify the FDIC and the DFI prior to appointing any new director or senior executive officer; (h) implement a program to monitor compliance of the MOU and review and record its review of compliance; (i) refrain from establishing any new offices without prior regulatory approval; and (j) submit written quarterly progress reports to the FDIC and the DFI detailing the form and manner of any actions taken to secure compliance with the MOU and the results thereof.

On December 9, 2009, the Company entered into an MOU with the Federal Reserve Bank of San Francisco (the “FRB”) pursuant to which the Company agreed, among other things, to (i) take steps to ensure that the Bank complies with the Bank’s MOU; (ii) implement a capital plan addressing specified items and submit the plan to the FRB for approval; (iii) submit annual cash flow projections to the FRB; (iv) refrain from paying cash dividends, receiving cash dividends from the Bank, increasing or guaranteeing debt, redeeming or repurchasing its stock, or issuing any additional trust preferred securities, without prior FRB approval; and (v) submit written quarterly progress reports to the FRB detailing compliance with the MOU.

The MOUs will remain in effect until modified or terminated by the FRB, the FDIC and the DFI. We do not expect the actions called for by the MOUs to change our business strategy in any material respect, although they may have the effect of limiting or delaying the Bank’s or the Company’s ability or plans to expand. The board of directors and management of the Bank and the Company have taken various actions to comply with the MOUs, and will diligently endeavor to take all actions necessary for compliance. Management believes that the Bank and the Company are currently in substantial compliance with the terms of the MOUs, although formal determinations of compliance with the MOUs can only be made by the regulatory authorities. In this regard, the Bank’s Leverage Capital Ratio and Total Risk-Based Capital ratios as of March 31, 2011 were 12.67% and 20.14%, considerably in excess of the required ratios for the Bank.

EXECUTIVE OVERVIEW

The Company recorded consolidated net income for the three months ended March 31, 2011 of $4.9 million and income of $0.10 per diluted common share, respectively, compared to consolidated net income of $2.8 million and a loss of $1.27 per diluted common share for the same period in 2010. The following were significant highlights related to the results during the three months ended March 31, 2011 as compared to the corresponding period of 2010:

•

The provision for loan losses on non-covered loans was $6.0 million for the three months ended March 31, 2011 compared to $7.0 million for the same period in 2010. The decrease was primarily due to a stabilization of risk factors as well as a reduction in non-covered loan portfolio.

•

Gain on sale of SBA loans of $3.9 million was recorded during the three months ended March 31, 2011 compared to zero for the same period in 2010. This included both loans that were sold subject to a ninety-day warranty period in December 2010, and loans that were sold during March 2011 without any such warranty.

•

Net interest income before provision for loan losses was $16.7 million for the three months ended March 31, 2011 as compared to $16.4 million for the same period in 2010. The average investment portfolio for the three months ended March 31, 2011 was $306.6 million compared to $376.7 million for the same period in 2010. The increase in net interest income before provision for loan losses was a result of the decrease in interest expenses to greater extent than that of interest income for the three ended March 31, 2011 compared to the same period in 2010. Most of the decrease in interest expense resulted from rate reductions in time certificates of deposits during the first three months in 2011 compared to the same period in 2010.

•

The net interest margin for the three months ended March 31, 2011 increased to 3.49% compared to 3.41% for the same period in 2010, primarily due to a decrease in the balance of interest-earning assets by $18.7 million and a decrease in the cost of interest-bearing liabilities to 1.60% for the three months ended March 31, 2011, compared to 1.94% during the same period in 2010.

•

The Company’s efficiency ratio increased to 53.2% for the three months ended March 31, 2011 compared to 49.1% for the same period in 2010. The increase mainly relates to the increase in noninterest expenses while there was no significant change in net interest income and noninterest income.

•

Return on average assets and return on average equity increased to 0.86% and 7.17%, respectively, for the three months ended March 31, 2011, compared to 0.53% and 4.34% during the same period in 2010. Return on average assets and the return on average equity increased due to the Company’s return to profitability primarily resulting from the gain on sale of SBA loans, the improvement in the net interest margin, and the decrease in the loan loss provision, offset by the increase in noninterest expenses.

The following are important factors in understanding the Company’s financial condition and liquidity:

•

The Company’s gross non-covered loans decreased by $80.5 million, or 5.3%, during the three months ended March 31, 2011. Net non-covered loans and loans held for sale decreased by $80.1 million, or 5.4%, to $1.40 billion at March 31, 2011, as compared to $1.48 billion at December 31, 2010. The decrease in the loan portfolio was mainly the result of higher levels of loan pay-offs, as well as several significant pay-downs in commercial lines of credit, and note sales during the first three months of 2011. The continued economic instability has continued to adversely affect the Company’s ability to originate loans in the current year.

•

Total non-covered nonperforming loans decreased to $38.3 million as of March 31, 2011 from $45.5 million as of December 31, 2010 and decreased significantly from $70.4 million as of March 31, 2010. The decrease from December 31, 2010 to March 31, 2011 primarily resulted from the decreases in nonperforming commercial real estate loans of $7.7 million offset by the increases in nonperforming SBA loans of $1.4 million.

•

Total deposits slightly increased $8.6 million or 0.5% to $1.78 billion at March 31, 2011 compared to $1.77 billion at December 31, 2010. Noninterest-bearing demand deposits as a percentage of total deposits increased to 23.0% as of March 31, 2011, compared to 22.4% as of March 31, 2010.

•

The ratio of net loans to total deposits slightly decreased to 84.7% at March 31, 2011 as compared to 89.9% at December 31, 2010.

EARNINGS PERFORMANCE ANALYSIS

As previously noted and reflected in the interim consolidated statements of operations, the Company recorded consolidated net income of $4.9 million during the three months ended March 31, 2011 compared to consolidated net income of $2.8 million during the same period in 2010. 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 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 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 March 31, 2011 and 2010:


	Three Months Ended March 31,
	2011							2010
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ¹⁾			Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield ¹⁾
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans ²⁾	$	1,556,504	$	21,161		5.51	%	$	1,474,122	$	20,598		5.67	%
Federal funds sold		72,653		42		0.23			103,624		60		0.23
Investments ^{3) 4)}		306,637		1,784		2.36			376,699		2,944		3.17

Total interest-earning assets		1,935,794		22,987		4.82			1,954,445		23,602		4.90

Noninterest - earning assets:
Cash and due from banks		247,881							84,983
Bank premises and equipment, net		13,432							13,231
Customers’ acceptances outstanding		2,138							2,193
Accrued interest receivables		4,945							6,437
Other assets		92,925							70,425

Total noninterest-earning assets		361,321							177,269

Total assets	$	2,297,115						$	2,131,714


Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	525,538	$	1,425		1.10	%	$	492,797	$	1,303		1.07	%
Savings		87,790		559		2.58			91,507		611		2.71
Time certificates of deposit over $100,000		461,539		1,418		1.25			522,126		2,357		1.83
Other time certificates of deposit		325,146		1,232		1.54			234,163		1,190		2.06

		1,400,013		4,634		1.34			1,340,593		5,461		1.65
Other borrowed funds		184,910		1,542		3.38			148,239		1,603		4.39
Long-term subordinated debentures		18,557		142		3.10			18,557		140		3.06

Total interest-bearing liabilities		1,603,480		6,318		1.60			1,507,389		7,204		1.94

Noninterest-bearing liabilities:
Demand deposits		396,251							350,135

Total funding liabilities		1,999,731				1.28	%		1,857,524				1.57	%

Other liabilities		21,171							15,742

Total noninterest-bearing liabilities		417,422							365,877
Shareholders’ equity		276,213							258,448

Total liabilities and shareholders’ equity	$	2,297,115						$	2,131,714

Net interest income			$	16,669						$	16,398

Cost of deposits						1.05	%						1.31	%

Net interest spread ⁵⁾						3.22	%						2.96	%

Net interest margin ⁶⁾						3.49	%						3.41	%

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

²⁾

Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in interest income were approximately ($150,000) for the three months ended March 31, 2011 and $71,000 for the same period in 2010. Net deferred loan fees are net of origination costs. In 2011 origination costs exceeded fees on SBA origination. Amortized loan fees have been included in the calculation of net interest income. Nonperforming loans have been included in the table for computation purposes, but the foregone interest on such loans is excluded.

³⁾	Investments include securities available for sale, securities held to maturity, FHLB and Pacific Coast Bankers Bank stock and money market funds and interest-bearing deposits in other banks.

⁴⁾	Interest income on a tax equivalent basis for tax-advantaged investments is not included in the computation of yields. There was no such income for the three months ended March 31, 2011 and 2010, respectively.

⁵⁾	Represents the weighted average yield on interest-earning assets less the weighted average cost of interest-bearing liabilities.

⁶⁾	Represents net interest income before provision for loan losses as a percentage of average interest-earning assets as adjusted for tax equivalent basis for any tax advantaged income.

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) and (ii) changes in interest rates (rate):


	Three Months Ended March 31, 2011 vs. 2010 Increase (Decrease) Due to Change In
	Volume			Rate ¹⁾			Total
	(Dollars in thousands)
Interest income:
Loans ²⁾	$	1,130		$	(567	)	$	563
Federal funds sold		(18	)		—			(18	)
Investments ³⁾		(489	)		(671	)		(1,160	)

Total earning assets		623			(1,238	)		(615	)


Interest expense:
Money market and super NOW accounts		88			34			122
Savings deposits		(25	)		(27	)		(52	)
Time Certificates of deposits		142			(1,039	)		(897	)
Other borrowings		350			(411	)		(61	)
Long-term subordinated debentures		—			2			2

Total interest-bearing liabilities		555			(1,441	)		(886	)

Net interest income before provision for loan losses	$	68		$	203		$	271

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

²⁾

Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in interest income were approximately ($150,000) and $71,000 for the three months ended March 31, 2011 and 2010, respectively. Amortized loan fees have been included in the calculation of net interest income. Nonperforming loans have been included in the table for computation purposes, but the foregone interest on such loans is excluded.

³⁾	Interest income on a tax equivalent basis for tax-advantaged investments is not included in the computation of yields. Such income amounted to $0 for the three months ended March 31, 2011 and 2010, respectively.

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 three months ended March 31, 2011 was $23.0 million compared to $23.6 million for the same period in 2010. The slight decrease was primarily due to the reduction in the volume and interest rates of investment portfolio. Average yield on earning assets slightly decreased to 4.84% for the three months ended March 31, 2011 from 4.90% for the same period in 2010.

Total interest expense for the three months ended March 31, 2011 decreased to $6.3 million compared to $7.2 million during the same period in 2010. The decrease was primarily due to the decrease in interest rate for time deposits offset by the increase in average volume of interest-bearing liabilities during the past year. Average deposit cost decreased to 1.34% during the three months ended March 31, 2011 compared to 1.65% during the same period in 2010. Average interest bearing liabilities increased to $1.6 billion for the three months ended March 31, 2011 compared to $1.51 billion for the same period in 2010 and noninterest-bearing demand deposits increased to $396.3 million at March 31, 2011 compared to $350.1 million at December 31, 2010.

As a result, net interest income before provision for loan losses was $16.7 million for three months ended March 31, 2011 compared to $16.4 million for the same period in 2010. In addition, the net interest margin for the three months ended March 31, 2011 increased to 3.49% from 3.41% for the same period in 2010, primarily due to a decrease in the balance of interest-earning assets by $18.7 million and a decrease in cost of interest-bearing liabilities to 1.60% for the three months ended March 31, 2011, compared to 1.94% during the same period in 2010.

Provision for Loan Losses

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for loan losses through charges to earnings, which are reflected in the consolidated statement of operations 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 was $6.0 million for the three months ended March 31, 2011 compared to $7.0 million for the same period in 2010. The decrease was primarily due to a stabilization of risk factors as indicated by the decreases in nonperforming loans. Management believes that the $6.0 million loan loss provision was adequate for the three months ended March 31, 2011 and that the allowance for loans losses of $51.0 million as of March 31, 2011 is adequate to absorb losses inherent in the Company’s loan portfolio.

While management believes that the allowance for loan losses, representing 3.53% of total non-covered loans at March 31, 2011 was adequate, future additions to the allowance will be subject to continuing evaluation of the estimated, 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

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


	Three Months Ended March 31,
	2011					2010
	Amount		Percent of Total			Amount		Percent of Total			Increase Amount			(Decrease) Percentage
	(Dollars in thousands)
Customer service fees	$	1,800		23.4	%	$	2,031		35.6	%	$	(231	)		(11.4	)%
Fee income from trade finance transactions		616		8.0			658		11.5			(42	)		(6.4	)
Wire transfer fees		313		4.1			281		4.9			32			11.4
Gain on sale of loans		3,752		48.7			—		—			3,752			100.0
Net gain (loss) on sale of securities available for sale		—		—			2,209		38.6			(2,209	)		(100.0	)
Loan service fees		662		8.6			160		2.8			502			313.8
Increase in FDIC loss share receivable		49		0.6			—		—			49			100.0
Other income		508		6.6			380		6.6			128			33.7

Total noninterest income	$	7,700		100.0		$	5,719		100.0		$	1,981			34.6

As a percentage of average earning assets				1.61	%				1.18	%

The increase in noninterest income for the three months ended March 31, 2011 compared to the same period in 2010 was primarily due to gain on sale of SBA loans incurred in 2011 offset by the gain on sale of securities available for sale in 2010. The decrease in customer service fees was primarily due to a decrease in overdraft fee charges for ATM and one-time debit card transactions. The Company sold $40.5 million of SBA loans to secondary market realizing gain of $3.9 million during the first quarter of 2011 whereas there was no such sale during the same period in 2010. The increase in loan service fees was a result of increasing SBA loans sold in 2011 compared to 2010. The Company was servicing $298.6 million and $107.9 million of sold SBA loans as of March 31, 2011 and 2010, respectively.

Noninterest Expense

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


	Three Months Ended March 31,
	2011						2010
				Percent						Percent			Increase (Decrease)
	Amount			of Total			Amount			of Total			Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	5,113			39.3	%	$	4,340			39.9	%	$	773			17.8	%
Occupancy		1,345			10.3			1,195			11.0			150			12.6
Furniture, fixtures, and equipment		603			4.6			507			4.7			96			18.9
Data processing		669			5.2			464			4.3			205			44.2
Legal fees		397			3.1			306			2.8			91			29.7
Accounting and other professional fees		572			4.4			315			2.9			257			81.6
Business promotion and advertising		354			2.7			257			2.4			97			37.7
Supplies and communication		348			2.7			264			2.4			84			31.8
Security service		293			2.3			235			2.2			58			24.7
Regulatory assessment		1,053			8.1			986			9.1			67			6.8
Merger related expenses		437			3.4			—			—			437			100.0
Net OREO related expenses		474			3.7			959			8.8			(485	)		(50.6	)
Other operating expenses		1,321			10.2			1,035			9.5			286			27.6

Total noninterest expense	$	12,979			100.0		$	10,863			100.0		$	2,116			19.5


As a percentage of average earning assets		2.72	%					2.25	%
Efficiency ratio		53.26						49.12

For the three months ended March 31, 2011, the increase in noninterest expense was mainly due to increases in salaries and employee benefits, legal expenses, accounting and professional expenses and merger related expenses offset by the decrease in OREO related expenses compared to the same period in 2010. The Company’s noninterest expenses increased in general primarily due to the acquisition of Innovative Bank during the second quarter of 2010. In particular, the increases in salaries and employee benefits, occupancy expenses, data processing and regulatory assessment fees were directly related to the acquisition. Certain professional fees were incurred in relation to potential merger with Nara Bancorp as discussed above. As the volume of OREO decreased over the past year, OREO related expenses declined significantly.

Noninterest expense as a percentage of average earning assets increased to 2.72% for the three months ended March 31, 2011 compared to 2.25% for the same period in 2010.

The Company’s efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income and noninterest income, increased to 53.20% for the three months ended March 31, 2011, compared to 49.10% for the same period in 2010. The increase mainly relates to the increase in noninterest expenses while there was no significant change in net interest income and noninterest income.

Provision for Income Taxes

Income tax expense (benefit) consists of current and deferred tax expense (benefit). Current tax expense (benefit) is the result of applying the current tax rate to current taxable income (loss). The deferred portion is intended to reflect income or loss that differs from financial statement pre-tax income or loss because some items of income and expense are recognized in different years for income tax purposes than in the financial statements.

At March 31, 2011, the Company maintained a valuation reserve of $9.1 million against its deferred tax assets. This was a $1.5 million decline from the valuation reserve balance as of December 31, 2010. This reduction in the valuation reserve reduced income tax expense by $1.5 million for the three months ended March 31, 2011 as compared to an increase by $172,000 during the same period in 2010. The large reduction in 2011 is primarily due to the pre-tax profit generated for the quarter ended March 31, 2011, which increased the cumulative taxable income available for carry-back for federal income tax purpose.

The income tax provision amounted to $0.5 million for the three months ended March 31, 2011 representing effective tax rates of 9.4% compared to income tax provision of $1.5 million for the same period in 2010 representing effective tax rates of 35.0%. The primary reasons for the difference from the federal statutory tax rate of 35% are the reduction in the valuation reserve for deferred tax assets as discussed above, inclusion of state taxes and reductions related to tax favored investments in low-income housing, dividend exclusions, treatment of share-based payments amortization, an increase in cash surrender value of bank owned life insurance, California enterprise zone interest deductions and hiring credits, and nondeductible merger costs. The Company reduced taxes utilizing the tax credits from investments in the low-income housing projects in the amount of $353,000 for the three months ended March 31, 2011 as compared to $283,000 for the same period in 2010.

It is management’s policy to separately disclose any penalties or interest arising from the application of federal or state income taxes. There were no penalties or interest assessed for the three months ended March 31, 2011.

The Internal Revenue Service (the “IRS”) and the Franchise Tax Board (the “FTB”) have examined the Company’s consolidated federal income tax returns for tax years up to and including 2005. As of March 31, 2011, the Company was under examination by the FTB for the 2005-2007 tax years and there is no open examination by the IRS. The Company does not anticipate any material changes as a result of the FTB examination. The Company has provided for additional Franchise taxes associated with this exam in the amount of $325,000. In addition, the Company does not have any unrecognized tax benefits subject to significant increase or decrease as a result of uncertainty.

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.

Short-term Investments

The Company invests its excess available funds from daily operations primarily in overnight Fed Funds and Money Market Funds. Money Market Funds are composed primarily of government funds and high quality short-term commercial paper. The Company can redeem the funds at any time. As of March 31, 2011 and December 31, 2010, the amounts invested in Federal Funds were $150,000 and $136.2 million, respectively. The average yield earned on these funds was 0.23% for the three months ended March 31, 2011 and 2010.

Investment Portfolio

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


	As of March 31, 2011
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	300	$	—	$	—		$	300
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		45,966		76		(327	)		45,715
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		171,820		4,121		(277	)		175,664
Corporate trust preferred security		2,746		—		(1,994	)		752
Mutual funds backed by adjustable rate mortgages		5,000		54		—			5,054
Collateralized mortgage obligations		84,338		668		(155	)		84,851

Total securities available for sale	$	310,170	$	4,919	$	(2,753	)	$	312,336


	As of December 31, 2010
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	300	$	—	$	—		$	300
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		58,994		94		(481	)		58,607
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		154,149		3,549		(599	)		157,099
Corporate trust preferred security		2,738		—		(1,979	)		759
Mutual funds backed by adjustable rate mortgages		5,000		73		—			5,073
Collateralized mortgage obligations		67,063		816		(166	)		67,713

Total securities available for sale	$	288,244	$	4,532	$	(3,225	)	$	289,551

The Company strives to maintain an investment portfolio with an adequate mix of fixed-rate and adjustable-rate securities with relatively short to moderate maturities to minimize overall interest rate risk. The Company’s investment securities portfolio consists of U.S. Treasury securities, U.S. Government agency securities, U.S. Government sponsored enterprise debt securities, mortgage-backed securities, and corporate debt. The mortgage backed securities and collateralized mortgage obligations (“CMO”) are all agency-guaranteed residential mortgages. The Company regularly models, evaluates and analyzes each agency CMO’s to capture its unique allocation of principal and interest.

As of March 31, 2011, securities available for sale totaled $312.3 million, compared to $289.6 million as of December 31, 2010. Securities available for sale as a percentage of total assets increased to 13.8% as of March 31, 2011 compared to 12.8% at December 31, 2010.

The investment securities purchased by the Company generally include U.S. agency and government sponsored entities (“GSE”), mortgage-backed securities (“MBS”) and CMO’s as well as agency debentures. The Company increased its holdings of Ginnie Mae (“GNMA”) securities during the quarter since GNMA securities are backed by the full faith and credit of the U.S. government and carry a zero risk weight for regulatory capital purposes. Although the investment yields on GNMA securities are generally lower than other comparable “non-GNMA” labeled securities, the Company believes that the purchases of GNMA securities are a prudent risk-reduction strategy.

Available-for-sale securities represented 100.0% of the investment portfolio as of March 31, 2011 and December 31, 2010. For the three months ended March 31, 2011, the yields on the average investment portfolio were 2.36% as compared to 3.17% for the same period in 2010.


	Within one Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Available for Sale (Fair Value):
U.S. Treasury	$	300		0.16	%	$	—		—	%	$	—		—	%	$	—		—	%	$	300		0.16	%
U.S. Governmental agencies securities and U.S Government sponsored enterprise securities		—		—			45,715		1.03			—		—			—		—			45,715		1.03
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		2		4.71			1,392		4.57			69,023		2.86			105,247		3.29			175,664		3.13
Corporate trust preferred security		—		—			—		—			—		—			752		11.71			752		11.71
Mutual funds backed by adjustable rate mortgages		5,054		3.39			—		—			—		—			—		—			5,054		3.39
Collateralized mortgage obligations		—		—			1,082		1.86			22,536		2.10			61,233		2.22			84,851		2.18

Total available for sale	$	5,356		3.21		$	48,189		1.15		$	91,559		2.67		$	167,232		2.94		$	312,336		2.59

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 March 31, 2011:


	As of March 31, 2011
	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. Governmental agencies securities and U.S. Government sponsored enterprise securities	$	26,706	$	(327	)	$	—	$	—		$	26,706	$	(327	)
U.S. Governmental agencies and U.S. Government sponsored enterprise mortgage-backed securities		26,376		(277	)		—		—			26,376		(277	)
Corporate trust preferred security		—		—			752		(1,994	)		752		(1,994	)
Collateralized mortgage obligations		23,507		(155	)		—		—			23,507		(155	)

Total	$	76,589	$	(759	)		752		(1,994	)	$	77,341	$	(2,753	)


	As of December 31, 2010
	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. Governmental agencies and U.S. Government sponsored enterprise securities	$	33,486	$	(481	)	$	—	$	—		$	33,486	$	(481	)
U.S. Governmental agencies and U.S. Government sponsored enterprise mortgage-backed securities		27,084		(599	)		—		—			27,084		(599	)
Corporate trust preferred security		—		—			759		(1,979	)		759		(1,979	)
Collateralized mortgage obligations		20,369		(166	)		—		—			20,369		(166	)

Total	$	80,939	$	(1,246	)	$	759	$	(1,979	)	$	81,698	$	(3,225	)

The Company regularly reviews the composition of the investment portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs, and overall interest rate risk profile and strategic goals. On a quarterly basis, the Company evaluates each security in the portfolio with an individual unrealized loss to determine if that loss represents an OTTI.

The Company considers the following factors in evaluating the securities: whether the securities were guaranteed by the U.S. government or its agencies and the securities’ public ratings, if available, and how those two factors affect credit quality and recovery of the full principal balance, the relationship of the unrealized losses to increases in market interest rates, the length of time the securities have had temporary impairment, and the Company’s intent and ability to hold the securities for the time necessary to recover the amortized cost. The Company also considers the payment performance, delinquency history and credit support of the underlying collateral for certain securities in the portfolio.

As of March 31, 2011, the Company had a total fair value of $77.3 million of securities with unrealized losses of $2.8 million. We believe these unrealized losses are due to a temporary condition, primarily changes in interest rates, and do not reflect a deterioration of credit quality of the issuers. The market value of securities that have been in a continuous loss position for 12 months or more as of March 31, 2011 was $0.7 million with unrealized losses of $2.0 million.

All individual securities that have been in a continuous unrealized loss position at March 31, 2011 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 March 31, 2011. These securities have decreased in value since their purchase dates as market interest rates have changed. However, the Company has the ability, and management intends, to hold these securities until their fair values recover to cost.

The Company owns one collateralized debt obligation (“CDO”) security that is backed by trust preferred securities (“TRUPS”) issued by banks and thrifts. At March 31, 2011, the fair value of the security was $0.8 million due to the decline in the fair value which is considered temporary.

The CDO TRUPS securities market, since 2007, has continuously been negatively impacted by the liquidity crunch and concern over the banking industry. If the weight of the evidence indicates the market is not orderly, a reporting entity shall place little, if any, weight compared with other indications of fair value on that transaction price when estimating fair value or market risk premiums. Factors that were considered to determine whether there has been a significant decrease in the volume and level of activity for the CDO TRUPS securities market when compared with normal activity include:

•

There are few recent transactions.

•

Price quotations are not based on current information.

•

Price quotations vary substantially either over time or among market makers.

•

Indexes that were previously highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability.

•

There is a significant increase in implied liquidity risk premiums. Yields or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the reporting entity’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability.

•

There is a wide bid-ask spread or significant increase in the bid-ask spread.

•

There is a significant decline or absence of new market issuances for the asset or liability.

•

Little information is publicly available.

In order to determine the fair value of the CDO TRUPS security, the Company uses Level 3 fair value measurement. The fair value of the CDO TRUPS security has traditionally been based on the average of at least two quoted market prices obtained from independent brokers. However, as a result of the global financial crisis and illiquidity in the U.S. markets, the market for these securities has become increasingly inactive since mid-2007. The current broker price for the CDO TRUPS securities is based on forced liquidation or distressed sale values in very inactive markets that may not be representative of the economic value of these securities. As such, the fair value of the CDO TRUPS security has been below cost since the advent of the financial crisis. Additionally, most, if not all, of these broker quotes are nonbinding.

The Company considered whether to place little, if any, weight on transactions that are not orderly when estimating fair value. Although length of time and severity of impairment are among the factors to consider when determining whether a security that is other than temporarily impaired, the CDO TRUPS securities have only exhibited deep declines in value since the credit crisis began. The Company therefore believes that this is an indicator that the decline in price is primarily the result of the lack of liquidity in the market for these securities.

The Company uses Moody’s Analytics to compute the fair value of the CDO TRUPS security. Moody’s continues to update their valuation process in order to refine and improve the estimate of default probabilities to align the valuation methodology with industry practices.

Moody’s approach to valuing CDO TRUPS includes asset and liability analyses to arrive at an Estimated Fundamental Value (EFV), then applies a liquidity spread to discount the EFV to the value that would be received in an orderly liquidation.

•

Asset Credit Quality Analysis: The credit quality of collateral supporting each CDO TRUPS is determined using Probability of Default values for each underlying issuer and Loss Given Default values by asset type.

•

Liability Analysis: The EFV of CDO TRUPS liabilities is determined through asset and liability modeling, specifically including (a) Forecasting cash flows generated by underlying collateral, (b) Establishing priority-of-claims distribution to each CDO tranche, and (c) Simulating the distribution of cash flows to each CDO tranche using a Monte Carlo simulation model.

•

Liquidity discount factor: A regression model is run based on historical data to determine an appropriate spread for the security in a liquid market. Using that liquid market spread plus current market interest rates, the EFV cash flows are discounted to arrive an orderly liquid exit value

The Company considers numerous factors to determine any OTTI for the CDO TRUPS security including review of trustee reports, monitoring of “break in yield” tests, analysis of current defaults and deferrals and the expectation for future defaults and deferrals. The Company reviews the key financial characteristics for individual issuers (commercial banks or thrifts) in the CDO TRUPS security and considers capital ratios, leverage ratios, nonperforming loan and nonperforming asset ratios, in addition to the credit ratings. The credit ratings of the Company’s CDO TRUPS security were “Ca” (Moody’s) and “C” (Fitch) at March 31, 2011 and December 31, 2010.

The Company uses cash flow projections for the purpose of assessing OTTI on CDO TRUPS security which incorporates certain credit events in the underlying collaterals and prepayment assumptions. The projected issuer default rates are assumed at a rate equivalent to 150 basis points applied annually and have a 0% recovery factor after the initial default date. The principal is assumed to be prepaying at 1% annually and at 100% at maturity.

Based on the results from the cash flow model, the CDO TRUPS security did not experience an adverse change in its cash flow status. As such, based on all of these factors, the Company determined that there was no OTTI adjustment required at March 31, 2011. The risk of future OTTI will be highly dependent upon the performance of the underlying issuers. The Company does not have the intention to sell and does not believe it will be required to sell the CDO TRUPS security.

Non-covered Loan Portfolio

The following table sets forth the composition of the Company’s non-covered loan portfolio, segregated by class of loans, as of the dates indicated:


	March 31, 2011						December 31, 2010
	Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Real Estate:
Construction	$	14,182			1.0	%	$	14,803			1.0	%
Commercial		880,723			60.8			914,003			59.8
Commercial:
Commercial		276,180			19.0			315,285			20.5
Trade Finance		66,243			4.6			71,174			4.7
SBA ¹⁾		100,712			7.0			101,683			6.7
Others:
Consumer		69,699			4.8			71,279			4.7
Other ²⁾		40,038			2.8			40,039			2.6

Total Non-covered Loans ³⁾		1,447,777			100.0			1,528,266			100.0

Less:
Allowance for Loan Losses		51,010						52,047
Net deferred Loan Fees ⁴⁾		(649	)					(523	)
Discount on SBA Loans Retained		1,617						862


Net Non-covered Loans and Loans Held for Sale	$	1,395,799					$	1,475,880

¹⁾	Includes non-covered SBA loans held for sale of $61.1 million and $46.4 million, at the lower of cost or fair value, at March 31, 2011 and December 31, 2010, respectively.

²⁾	Consists of term fed funds sold for maturity of greater than 1 day, transactions in process and overdrafts.

³⁾	Real estate commercial loans are loans secured by deeds of trust on real estate. Balance includes non-covered loans held for sale $65.7 million and $60.2 million, at the lower of cost or fair value, at March 31, 2011 and December 31, 2010, respectively.

⁴⁾	Includes advances on trust receipts, clean advances, cash advances, acceptances discounted, and documentary negotiable advances under commitments.

The Company’s total non-covered loans decreased by $80.5 million, or 5.3%, during the three months ended March 31, 2011. Net non-covered loans and loans held for sale decreased by $80.1 million, or 5.4%, to $1.40 billion at March 31, 2011, as compared to $1.48 billion at December 31, 2010. The decrease in the loan portfolio was mainly the result of charge-offs of $7.7 million, several significant pay-downs in commercial lines of credit, and note sales of $14.4 million exclusive of the portion financed by the Company in real estate loans during the first three months of 2011. Net non-covered loans and loans held for sale as of March 31, 2011 represented 61.5% of total assets, compared to 65.0% as of December 31, 2010.

The Company’s SBA portfolio decreased to $100.7 million at March 31, 2011 compared to $101.7 million at December 31, 2010. During the three months ended March 31, 2011, the Company sold $40.5 million of SBA loans to a secondary market. As of March 31, 2011, the Company was servicing $298.6 million of sold SBA loans, compared to $270.0 million of sold SBA loans as of December 31, 2010. The Company originated $48.7 million of SBA loans during the first quarter of 2011 as compared to $15.4 million during the same period in 2010.

Other loans mainly consist of term fed funds sold and virtually did not change during the past year. It is currently management’s intention to reduce the concentration of real estate loans in the loan portfolio. The Company has determined it has no reportable foreign credit risk.

Covered Loan Portfolio

Total covered loans, inclusive of fair value adjustment, were $111.8 million and $117.3 million at March 31, 2011 and December 31, 2010, respectively. The following table presents the concentration of the covered loans, segregated by class of loans, at March 31, 2011 and December 31, 2010:


	March 31, 2011						December 31, 2010
	Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Real Estate:
Construction	$	—			—	%	$	—			—	%
Commercial - Real Estate		70,568			51.2			74,193			50.3
Commercial:
Commercial - Business		16,616			12.0			20,277			13.7
Trade Finance		—			—			—			—
SBA		50,024			36.3			52,681			35.7
Others:
Consumer		693			0.5			486			0.3
Other		—			—			—			—

Total Covered Loans		137,901			100.0			147,637			100.0

Covered loans discount		(26,138	)					(30,344	)

Net valuation of loans		111,763						117,293
Less:
Allowance for losses		1,010						1,010

Total Net Covered Loans	$	110,753					$	116,283

The covered loans are subject to a loss sharing agreement with the FDIC. Under the terms of the loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries. The reimbursed losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the assumption. New loans made after that date are not covered by the loss sharing agreement.

Non-covered Nonperforming Assets

Nonperforming assets are defined as loans on non-accrual status, loans 90 days or more past due but not on non-accrual status, restructured loans, and Other Real Estate Owned (“OREO”). Management generally places loans on non-accrual status when they become 90 days past due, unless they are both fully secured and in process of collection. OREO consists of real property acquired through foreclosure or similar means that management intends to offer for sale. Loans may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms, where the Company believes the borrower will eventually overcome those circumstances and repay the loan in full. Troubled Debt Restructurings (“TDRs”) are considered non-performing assets for regulatory purposes even though they are fully performing, and they are required to be disclosed in the following table. Performing TDRs are not considered non-covered nonperforming assets for purposes of computing the ratio of nonperforming assets as a percentage of total non-covered loans and OREO.

At March 31, 2011, the Company held TDRs of $34.2 million as compared to $39.1 million at December 31, 2010. A TDR is a debt restructuring in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs may include, but are not necessarily limited to:

the transfer from the borrower to the bank of real estate, receivables from third parties, other assets, or an equity interest in the borrower in full or partial satisfaction of the loan;

a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest lower than current market rates for new debt with similar risk, or

a combination of the above.

A TDR that has been formally restructured so as to be reasonably assured of repayment and of performance according to its modified terms need not be maintained in a non-accrual or nonperforming status, provided the TDR is supported by a current well documented credit evaluation and positive prospects of repayment under the revised terms. If these conditions can not be met, the Company will classify the TDR as non-accrual or nonperforming.

All TDRs at March 31, 2011 are impaired, and $14.3 million were non-accrual and are included in the table below by the appropriate category. The remaining $19.9 million of the Company’s TDRs meet the conditions that qualify these loans as performing at March 31, 2011.

The Company’s classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectibility of principal 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. The remaining balance of the loan will be charged off if the loan deteriorates further due to a borrower’s bankruptcy or similar financial problems, unsuccessful collection efforts or a loss classification by regulators and/or internal credit examiners. These loans may or may not be collateralized, but collection efforts are continuously pursued. Subsequent collection of payments will reduce the principal balance of the loan until the collateral is liquidated or the loan is paid.

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


	March 31, 2011			December 31, 2010			March 31, 2010
	(Dollars in thousands)
Non-covered nonperforming loans:
Real estate:
Construction	$	5,738		$	6,108		$	7,008
Commercial - Real Estate		21,490			29,167			49,088
Commercial
Commercial - Business		5,263			5,696			8,871
Trade Finance		100			—			1,498
SBA		5,278			3,896			3,612

Other
Consumer		383			651			348
Other		—			—			—

Total non-covered nonperforming loans		38,252			45,518			70,425
Guaranteed portion of nonperforming loans		4,110			3,293			4,705

Total non-covered nonperforming loans, net of SBA guarantees		34,142			42,225			65,720
Non-covered OREO		144			937			2,993

Total non-covered nonperforming assets, net of SBA guarantees	$	34,286		$	43,162		$	68,713


Performing TDR’s not included above	$	19,894		$	21,377		$	9,811


Nonperforming loans, net of SBA guarantees as a percent of total non-covered loans		2.36	%		2.76	%		4.32	%
Nonperforming assets, net of SBA guarantees as a percent of non-covered loans and OREO		2.37	%		2.82	%		4.50	%

Total non-covered nonperforming loans decreased to $38.3 million as of March 31, 2011 from $45.5 million as of December 31, 2010 and from $70.4 million as of March 31, 2010. The decrease from December 31, 2010 to March 31, 2011 primarily resulted from the decreases in nonperforming commercial real estate loans of $7.7 million mainly driven by note sales of $14.4 million, offset by the increases in nonperforming SBA loans of $1.4 million. In addition, non-covered nonperforming loans of $4.6 million were reclassified as non-covered loans held for sale during the three months ended March 31, 2011.

Total non-covered nonperforming assets, net of SBA guarantees were $34.3 million, representing 2.37% of total non-covered loans and OREO at March 31, 2011 compared to $43.2 million, representing 2.82% of total non-covered loans and OREO at December 31, 2010. Total non-covered nonperforming loans, net of SBA guarantees, decreased to $34.1 million as of March 31, 2011 from $42.2 million as of December 31, 2010. The decrease from December 31, 2010 was a result of reclassification to non-covered loans held for sale.

The following table provides information on non-covered impaired loans:


	As of and For the Three Months Ended March 31, 2011
	Recorded Investment ¹⁾		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Real Estate
Construction	$	—	$	—	$	—	$	—	$	—
Commercial - Real Estate		30,959		30,796		—		44,269		56
Commercial
Commercial - Business		8,750		8,706		—		8,793		32
Trade Finance		535		533		—		550		—
SBA		1,568		1,582		—		1,619		18
Others
Consumer		643		643		—		644		1
Other		—		—		—		—		—

Total	$	42,455	$	42,260	$	—	$	55,875	$	107

With an allowance recorded:
Real Estate
Construction	$	5,750	$	5,738	$	1,188	$	5,925	$	—
Commercial - Real Estate		25,322		25,125		4,716		27,141		94
Commercial
Commercial - Business		21,998		21,888		10,431		24,396		178
Trade Finance		805		804		114		1,098		1
SBA		47		48		48		115		—
Others
Consumer		819		814		328		814		1
Other		—		—		—		—		—

Total	$	54,741	$	54,417	$	16,825	$	59,489	$	274

Total
Real Estate
Construction	$	5,750	$	5,738	$	1,188	$	5,925	$	—
Commercial - Real Estate		56,281		55,921		4,716		71,410		150
Commercial
Commercial - Business		30,748		30,594		10,431		33,189		210
Trade Finance		1,340		1,337		114		1,648		1
SBA		1,615		1,630		48		1,734		18
Others
Consumer		1,462		1,457		328		1,458		2
Other		—		—		—		—		—

Total	$	97,196	$	96,677	$	16,825	$	115,364	$	381

1)	Includes unpaid principal balance plus any accrued interest, net deferred fees.


	As of and For the Year Ended December 31, 2010
	Recorded Investment ¹⁾		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Real Estate
Construction	$	3,514	$	3,501	$	—	$	2,841	$	20
Commercial - Real Estate		45,251		45,042		—		53,451		798
Commercial
Commercial - Business		10,277		10,216		—		8,746		277
Trade Finance		—		—		—		80		4
SBA		490		488		—		383		41
Others
Consumer		646		646		—		538		21
Other		—		—		—		—		—

Total	$	60,178	$	59,893	$	—	$	66,039	$	1,161

With an allowance recorded:
Real Estate
Construction	$	2,606	$	2,607	$	223	$	3,289	$	—
Commercial - Real Estate		18,263		18,137		2,126		26,981		659
Commercial
Commercial - Business		13,758		13,649		8,022		6,111		165
Trade Finance		1,219		1,199		633		915		53
SBA		1,275		1,278		310		710		57
Others
Consumer		817		814		329		637		20
Other		—		—		—		—		—

Total	$	37,938	$	37,684	$	11,643	$	38,643	$	954

Total
Real Estate
Construction	$	6,120	$	6,108	$	223	$	6,130	$	20
Commercial - Real Estate		63,514		63,179		2,126		80,432		1,457
Commercial
Commercial - Business		24,035		23,865		8,022		14,857		442
Trade Finance		1,219		1,199		633		995		57
SBA		1,765		1,766		310		1,093		98
Others
Consumer		1,463		1,460		329		1,175		41
Other		—		—		—		—		—

Total	$	98,116	$	97,577	$	11,643	$	104,682	$	2,115

Includes unpaid principal balance plus any accrued interest, net deferred fees.

During the first three months of 2011, the continued economic instability was a major contributor to the increase in impaired loans, along with the continued weakness of the commercial real estate market in Southern California. As of March 31, 2011, specific reserves of $16.8 million represented 17.4% of the impaired loans with specific reserves as compared to 11.9% as of December 31, 2010.

Covered Nonperforming Assets

Covered nonperforming assets totaled $15.7 million and $16.5 million at March 31, 2011 and December 31, 2010, respectively. These covered nonperforming assets are subject to loss sharing agreement with the FDIC. The covered nonperforming assets at March 31, 2011 and December 31, 2010 are as follows:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
Covered loans on non-accrual status	$	14,273	$	15,021
Covered other real estate owned		1,405		1,459

Total covered nonperforming assets	$	15,678	$	16,480

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete the accretable discount to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.

Allowance for Loan Losses on Non-covered Loans

The Company’s allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors include the Company’s 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’ sensitivity to interest rate movements and 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 the Company’s markets and, in particular, the state of certain industries. Size and complexity of individual credits, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in its methodologies. As the Company adds new products, increases the complexity of the loan portfolio, and expands its geographic coverage, the Company will enhance the methodologies to keep pace with the size and complexity of the loan portfolio. Changes in any of the above factors could have significant impact to the allowance for loan loss calculation. The Company believes that its methodologies continue to be appropriate given its size and level of complexity.

The allowance for loan losses reflects management’s judgment of the level of the allowance considered adequate to provide for probable losses inherent in the loan portfolio as of the date of the consolidated statements of financial condition. 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 and an allocated allowance for large groups of smaller balance homogenous loans. To assist management in monitoring the allowance for loan losses, the Company’s independent loan review consultants review the allowance as an integral part of their examination process.

Allowance for Specifically Identified Problem Loans. A specific allowance is established for impaired loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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. The Company measures impairment based on the fair value of the collateral, adjusted for the cost related to liquidation of the collateral.

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 subject to the allowance for specifically identified loans discussed above are not reviewed individually and are 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 the inherent loss for these loans involves a high degree of uncertainty, subjectivity and judgment because probable loan losses are not identified with a specific loan. In determining the formula allowance, the Company relies on a mathematical calculation that incorporates a six-quarter rolling average of historical losses. Current quarter losses are measured against previous quarter loan balances to develop the loss factor. 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;

•

the third most recent is weighted 4/3.

The formula allowance may be further adjusted to account for the following qualitative factors which have been established at a minimum of 50 basis points:

•

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 non-accrual loans and troubled debt restructurings, and other loan modifications;

•

Changes in the quality of the Company’s loan review system and the degree of oversight by the directors;

•

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

•

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

Allowance for Large Groups of Smaller Balance Homogenous 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 an analysis of individual loans. Large groups of smaller balance homogenous loans mainly consist of consumer loans to individuals. The allowance for groups of performing loans is based on historical losses over a six-quarter 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 and other qualitative factors and trends.

The following table sets forth the composition of the allowance for loan losses on non-covered loans as of March 31, 2011 and December 31, 2010, respectively:


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
Specific (Impaired loans)	$	16,824	$	11,643
Formula (non-homogeneous)		33,473		39,939
Homogeneous		713		465

Total allowance for loan losses	$	51,010	$	52,047

The table below summarizes the activity in the Company’s allowance for loan losses on non-covered loans for the periods indicated:


	Three Months Ended March 31, 2011			Year Ended December 31, 2010			Three Months Ended March 31, 2010
Balances	(Dollars in thousands)
Average total non-covered loans outstanding during the period ¹⁾	$	1,494,492		$	1,493,526		$	1,534,369

Total non-covered loans outstanding at end of period ¹⁾	$	1,446,808		$	1,527,928		$	1,521,350

Allowance for Loan Losses:
Balance at beginning of period	$	52,047		$	58,543		$	58,543
Charge-offs:
Construction		371			947			—
Commercial - Real Estate		5,246			20,296			3,659
Commercial - Business		1,251			8,114			532
Trade Finance		200			1,448			—
SBA		370			1,075			331
Consumer		303			767			190
Other		—			—			—

Total charge-offs		7,741			32,647			4,712
Recoveries
Construction		366			561			43
Commercial - Real Estate		191			1,357			—
Commercial - Business		63			2,890			53
Trade Finance		—			—			—
SBA		18			189			40
Consumer		66			154			44
Other		—			—			—

Total recoveries		704			5,151			180

Net loan charge-offs		7,037			27,496			4,532
Provision for loan losses		6,000			21,000			7,000

Balance at end of period	$	51,010		$	52,047		$	61,011

Ratios:
Net loan charge-offs to average total non-covered loans*		1.91	%		1.84	%		1.20	%
Provision for loan losses to average total non-covered loans*		1.63			1.41			1.85
Allowance for loan losses to total non-covered loans at end of period		3.53			3.41			4.01
Allowance for loan losses to total non-covered nonperforming loans		133.4			114.3			86.6
Net loan charge-offs to allowance for loan losses at end of period*		55.95			52.83			30.13
Net loan charge-offs to provision for loan losses		117.28			130.93			64.74

*	Ratios are annualized for comparability purposes

¹⁾	Total non-covered loans are net of deferred loan fees and discount on SBA loans sold.

Based on a quarterly migration and qualitative analysis which evaluates the loan portfolio credit quality, the allowance for loan losses decreased to $51.0 million as of March 31, 2011 compared to $52.0 million at December 31, 2010. The Company recorded a provision of $6.0 million for the three months ended March 31, 2011 compared to $7.0 million for the same period in 2010. For the three months ended March 31, 2011, the Company charged off $7.7 million and recovered $0.7 million resulting in net loan charge-offs of $7.0 million, compared to net loan charge-offs of $4.5 million for the same period in 2010.

Management believes the level of the allowance as of March 31, 2011 is adequate to absorb the estimated losses from any known or inherent risks in the loan portfolio. However, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances may not require increased provisions for loan losses in the future.

The ratio of the Company’s allowance for loan losses to total non-covered loans increased to 3.53% at March 31, 2011 from 3.41% at December 31, 2010. The ratio of the allowance for loan losses to total non-covered nonperforming loans increased to 133% as of March 31, 2011 compared to 114% as of December 31, 2010 due to a reduction in non-covered nonperforming loans. 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. Commercial real estate is the principal collateral for the Company’s loans.

Deposits

The composition and cost of the Company’s deposit base are important components in analyzing its net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. Net interest margin is improved to the extent that growth in deposits can be concentrated in lower-cost core deposits, namely noninterest-bearing demand, NOW accounts, savings accounts and money market deposit accounts. Liquidity is impacted by the volatility of deposits or other funding instruments, or in other words their propensity to leave the institution for rate-related or other reasons. Potentially, the most volatile deposits in a financial institution are large certificates of deposit (e.g., generally time deposits with balances exceeding $250,000). Because these deposits (particularly when considered together with a customer’s other specific deposits) may exceed FDIC insurance limits, depositors may select shorter maturities to offset perceived risk elements associated with such deposits.

The Company’s average interest bearing deposit cost decreased to 1.34% for the three months ended March 31, 2011, compared to 1.65% for the same period in 2010. The decrease was a result of management’s effort to change the deposit mixes focusing more on lower cost deposits during the past year by significantly decreasing the rates offered on time deposits.

The Company can deter, to some extent, the rate sensitive customers who demand high cost certificates of deposit because of local market competition by using wholesale funding sources. As of March 31, 2011, the Company held brokered deposits in the amount of $62.9 million compared to $101.2 million as of December 31, 2010. The Company also had certificates of deposit with State of California in the amount of $115.0 million as of March 31, 2011 and $115.0 million as of December 31, 2010.

The following table summarizes deposits and the composition of deposits as a percentage of total deposits as of the dates indicated:


	March 31,				December 31,				Change in
	2011				2010				Amount			Percentage
	(Dollars in thousands)
Demand deposits (noninterest-bearing)	$	408,843	23.0	%	$	396,973	22.4	%	$	11,870			3.0	%
Money market accounts and NOW		531,580	29.8			471,132	26.6			60,448			12.8
Savings		88,423	5.0			87,484	4.9			939			1.1

		1,028,846	57.8			955,589	54.0			73,257			7.7
Time deposits
Less than $100,000		309,311	17.4			334,341	18.9			(25,030	)		(7.5	)
$100,000 or more		441,449	24.8			481,064	27.2			(39,615	)		(8.2	)

Total	$	1,779,606	100.0		$	1,770,994	100.0		$	8,612			0.5

Total deposits increased by $8.6 million or 0.5% at March 31, 2011 compared to $1.77 billion at December 31, 2010. During the first three months of 2011, noninterest-bearing demand deposits increased by $11.9 million, or 3.0%, and represented 23.0% of total deposits at March 31, 2011 compared to 22.4% at December 31, 2010. MMDA and NOW account balances increased by $60.4 million, or 12.8%, representing 29.8% of total deposits at March 31, 2011 increasing from 26.6% at December 31, 2010. Savings account balances increased by $1.0 million, or 1.1%, and represented 5.0% of total deposits at March 31, 2011 from 4.9% at December 31, 2010. Time deposits under $100,000, which are classified as core deposits, decreased by $25.0 million, or 7.5%. Jumbo time deposits, or time deposits equal to or greater than $100,000, decreased by $39.6 million, or 8.2%.

Time deposits by maturity dates are as follows at March 31, 2011:


Year	$100,000 or Greater		Less Than $100,000		Total
	(Dollars in thousands)
2011	$	317,322	$	199,435	$	516,757
2012		92,657		101,365		194,022
2013		24,432		7,701		32,133
2014		4,462		373		4,835
2015 and thereafter		2,576		437		3,013

Total	$	441,449	$	309,311	$	750,760

Information concerning the average balance and average rates paid on deposits by deposit type for the three months ended March 31, 2011 and 2010 is contained in the tables above in the section entitled “Net Interest Income and Net Interest Margin.”

Other Borrowed Funds

The Company regularly uses 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 borrowings were $166.8 million and $167.2 million at March 31, 2011 and December 31, 2010, respectively. Notes issued to the U.S. Treasury amounted to $939,000 as of March 31, 2011 compared to $963,000 as of December 31, 2010. The total borrowed amount outstanding at March 31, 2011 and December 31, 2010 was $167.7 million and $188.7 million, respectively.


	March 31, 2011		December 31, 2010
	(Dollars in thousands)
FHLB	$	166,811	$	167,213
US Treasury		938		963
Secured financing - SBA loan transfer		—		20,494

Total other borrowed funds	$	167,749	$	188,670

In addition, the issuance of long-term subordinated debentures at the end of 2004 of $18.0 million in “pass-through” trust preferred securities created another source of funding.

Contractual Obligations

The following table presents, as of March 31, 2011, 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.


	Remaining 9 months in 2011		2012		2013		2014		2015		2016 & thereafter		Total
	(Dollars in thousands)
Debt obligations ²¹⁾	$	—	$	—	$	—	$	—	$	—	$	18,557	$	18,557
FHLB advances		40,621		105,389		157		167		176		20,301		166,811
Deposits		534,100		207,825		41,577		10,633		4,722		286		799,143
Operating lease obligations		1,971		2,253		1,807		1,310		1,011		1,573		9,925

Total contractual obligations	$	576,692	$	315,467	$	43,541	$	12,110	$	5,909	$	40,717	$	994,436

¹⁾	Includes principal payment only and may be redeemed quarterly by the issuer.

LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT

Liquidity

The objective of liquidity risk management is to ensure that the Company has the continuing ability to maintain cash flows that are adequate to fund operations and meet its other obligations on a timely and cost-effective basis in various market conditions. Changes in each of the composition of its balance sheet, the ongoing diversification of its funding sources, risk tolerance levels and market conditions are among the factors that influence the Company’s liquidity profile. The Company establishes liquidity guidelines and maintains contingency liquidity plans that provide for specific actions and timely responses to liquidity stress situations.

As a means of augmenting the liquidity sources, the Company has available a combination of borrowing sources comprised of FHLB advances, federal funds lines with various correspondent banks, and access to the wholesale markets. The Company believes these liquidity sources to be stable and adequate. At March 31, 2011, the Company was not aware of any information that was reasonably likely to have a material adverse effect on its liquidity position.

The liquidity of the Company is primarily dependent on the payment of cash dividends by its subsidiary, Center Bank, subject to limitations imposed by the laws of the State of California, and by the terms of the MOUs between the Company and the Bank and their respective regulatory agencies (see “Informal Regulatory Agreements” above). Center Financial held $5.2 million in liquid funds with Center Bank at March 31, 2011 which can be used to pay dividends on Center Financial’s preferred stock, interest on its capital trust pass-through securities and other expenses as needed.

As part of the Company’s liquidity management, the Company utilizes FHLB borrowings to supplement our deposit source of funds. Therefore, there could be fluctuations in these balances depending on the short-term liquidity and longer-term financing need of the Company. The Company’s primary sources of liquidity are derived from financing activities, which include customer and brokered deposits, federal funds facilities, and advances from the FHLB.

Because the Company’s primary sources and uses of funds are deposits and loans, respectively, the relationship between net loans and total deposits provides one measure of the Company’s liquidity. Typically, if the ratio is over 100%, the Company relies more on borrowings, wholesale deposits and repayments from the loan portfolio to provide liquidity. Alternative sources of funds such as FHLB advances and brokered deposits and other collateralized borrowings provide liquidity as needed from liability sources are an important part of the Company’s asset liability management strategy.


	At March 31, 2011			At December 31, 2010
	(Dollars in thousands)
Net loans	$	1,506,552		$	1,592,163
Deposits	$	1,779,606		$	1,770,994
Net loan to deposit ratio		84.7	%		89.9	%

As of March 31, 2011 and December 31, 2010, the Company’s liquidity ratio, which is the ratio of available liquid funds to net deposits and short-term liabilities, was 19.3% and 18.5%, respectively. The Company’s liquidity ratio remained consistent as cash and other short-term marketable assets remained relatively unchanged during the first three months in 2011. Total available on balance sheet liquidity as of March 31, 2011 was $351.8 million, consisting of excessive cash holdings or balances in due from banks, overnight Fed funds sold, money market funds and unpledged available-for-sale securities, as compared to $335.6 million as of December 31, 2010.

At March 31, 2011, the Company’s net non-core fund dependence ratio was 21.0% under applicable regulatory guidelines, which assumes all certificates of deposit over $100,000 (“Jumbo CD’s”) as volatile sources of funds, as compared to 28.1% at December 31, 2010. The net non-core fund dependence ratio is the ratio of net short-term investment less non-core liabilities divided by long-term assets. All of the ratios as of and for the three months ended March 31, 2011were in compliance with internal guidelines. The Company is continuously looking toward the growth of retail core and time deposits to meet its liquidity needs in the future.

At March 31, 2011, the Company had $345.7 million in FHLB borrowings, $163.4 million with FRB and $36.0 million in federal funds lines totaling $545.1 million of available funding sources. Additionally, $28.2 million in investment securities may be pledged as collateral for repurchase agreements and other credit facilities. The Company was approved for the Borrower In Custody arrangement by the FRB in January 2009. Collateral held in such an arrangement may be used to secure advances and/or credit for the discount window program and will provide the Company with additional source of liquidity. This total available funding availability does not include the Company’s ability to purchase brokered deposits, which is limited by the Company’s policy to 20% of total deposits.


	FHLB			FRB		Federal Funds Facility		Total
	(Dollars in thousands)
Total capacity	$	512,114		$	163,382	$	36,000	$	711,496
Used		(166,384	)		—		—		(166,384	)

Available	$	345,730		$	163,382	$	36,000	$	545,112

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. 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.

The Company’s strategy for asset and liability management is formulated and monitored by the Company’s Asset/Liability Board Committee (the “Board Committee”). This Board Committee is composed of four non-employee directors and the President. The Board Committee meets quarterly to review and adopt recommendations of the Asset/Liability Management Committee (“ALCO”).

The ALCO 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 Company’s ALCO is to manage the financial components of the Company’s balance sheet to optimize the 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 ALCO 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 ALCO also approves and establishes pricing and funding decisions with respect to overall asset and liability composition, and reports regularly to the 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 the Company earns on its assets and pays on its liabilities are established contractually for specified periods of time. Market interest rates change over time and if a financial institution cannot quickly adapt to changes in interest rates, 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.

The Company’s overall strategy is to minimize the adverse impact of immediate incremental changes in market interest rates (rate shock) on net interest income and economic value of equity. Economic value of equity is defined as the present value of assets, minus the present value of liabilities and off-balance sheet instruments. The attainment of this goal requires a balance between profitability, liquidity and interest rate risk exposure. To minimize the adverse impact of changes in market interest rates, the Company simulates the effect of instantaneous interest rate changes on net interest income and economic value of equity (“EVE”) on a quarterly basis. The table below shows the estimated impact of changes in interest rates on our net interest income and market value of equity as of March 31, 2011 and December 31, 2010, respectively, assuming a parallel shift of 100 to 300 basis points in both directions.


	Net Interest Income (NII) ¹⁾						Economic Value of Equity (EVE) ²⁾
Change (In Basis Points)	March 31, 2011 % Change			December 31, 2010 % Change			March 31, 2011 % Change			December 31, 2010 % Change
+300		23.12	%		19.81	%		-22.68	%		-20.97	%
+200		14.97	%		12.83	%		-14.87	%		-13.60	%
+100		7.48	%		6.46	%		-7.43	%		-6.77	%
Level
-100		0.61	%		1.25	%		4.85	%		4.45	%
-200		2.93	%		4.09	%		10.41	%		10.06	%
-300		2.21	%		3.95	%		12.29	%		10.67	%

¹⁾	The percentage change represents net interest income for twelve months in a stable interest rate environment versus net interest income in the various rate scenarios

²⁾	The percentage change represents economic value of equity of the Company in a stable interest rate environment versus economic value of equity in the various rate scenarios

All interest-earning assets and interest-bearing liabilities are included in the interest rate sensitivity analysis at March 31, 2011 and December 31, 2010, respectively. The changes in NII and EVE were primarily attributable to the acquisition of Innovative Bank. At March 31, 2011 and December 31, 2010, respectively, our estimated changes in net interest income and economic value of equity were within the ranges established by the Board of Directors. In a declining rate environment, the interest rate floors on the loans contribute to the favorable impact on the net interest income while in the rising rate environment, these interest rate floors also serve to lessen the full benefit of higher interest rates.

The 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’s 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 EVE could vary substantially if different assumptions were used or if actual experience were to differ from the historical experience on which they are based.

CAPITAL RESOURCES

Shareholders’ equity as of March 31, 2011 was $278.9 million, compared to $274.0 million as of December 31, 2010. The increase was due primarily to net earnings of $4.9 million in the first three months of 2011. The primary sources of capital have historically been retained earnings and relatively nominal proceeds from the exercise of employee incentive and/or nonqualified stock options, though there were no option exercises during the first three months of 2011. Shareholders’ equity is also affected by changes in unrealized losses on available-for-sale securities.

As part of the TARP Capital Purchase Program, the Company entered into a purchase agreement with the Treasury Department on December 12, 2008, pursuant to which the Company issued and sold 55,000 shares of fixed-rate cumulative perpetual preferred stock for a purchase price of $55 million and 10-year warrants to purchase 864,780 shares of the Company’s common stock at an exercise price of $9.54 per share. The number of shares underlying the Warrant was reduced to 432,290 effective December 31, 2009 as a result of the capital raises during 2009. The Company will pay the Treasury Department a five percent dividend annually for each of the first five years of the investment and a nine percent dividend thereafter until the shares are redeemed.

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. From October 2003 to January 2009 Center Financial paid quarterly cash dividends to its shareholders. On March 25, 2009, the Company’s board of directors suspended its quarterly cash dividends based on adverse economic conditions and the Company’s then recent losses. The Company has determined that this is a prudent, safe and sound practice to preserve capital. The Company would be required to obtain the Treasury Department’s approval to reestablish common stock dividends in the future until December 2011 unless the preferred stock issued to the Treasury Department in the TARP Capital Purchase Program has been redeemed prior to that time. The Company is also required to obtain prior approval of the FRB to pay dividends pursuant to its MOU with the FRB (see “Informal Regulatory Agreements” above).

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.” As of March 31, 2011, all of the Company’s capital ratios were above the minimum regulatory requirements for a “well-capitalized” institution.

The MOU the Bank has entered into with the FDIC and the DFI requires the development of a capital plan that includes maintaining a minimum Tier 1 leverage capital ratio of not less than 9% and a total risk-based capital ratio of not less than 13% while the MOU remains in effect. The Bank’s regulatory capital ratios as of March 31, 2011 and December 31, 2010 exceeded these requirements.

The following table compares the Company’s and Bank’s actual capital ratios at March 31, 2011, to those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:

Regulatory Capital Ratios


	Center Financial Corporation			Center Bank			Minimum Regulatory Requirements			Well Capitalized Requirements
Total Capital (to Risk-Weighted Assets)		20.42	%		20.14	%		8.00	%		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		19.14	%		18.86	%		4.00	%		6.00	%
Tier 1 Capital (to Average Assets)		12.85	%		12.67	%		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

Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits 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 the Company in the reports that it files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of our management, including our CEO and interim CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011. Based on the evaluation, our CEO and interim CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2011.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1:

LEGAL PROCEEDINGS

In the normal course of business, the Company from time to time is involved in various claims and legal proceedings. With the exception of the potentially adverse outcome in the litigation herein described, after taking into consideration information furnished by counsel as to the current status of these claims and proceedings, management does not believe that any liability resulting from such proceedings would have a material adverse effect on the Company’s financial condition or results of operation.

On May 2, 2011, a purported class action was filed in Los Angeles County Superior Court against the Company, the Company’s directors and Nara Bancorp alleging that the directors breached their fiduciary duties in connection with their approval of the proposed merger with Nara Bancorp and that the Company breached its fiduciary duties in connection with the disclosures it made regarding the proposed merger. The complaint seeks compensatory or rescissionary damages and other unspecified relief.

Item 1A:

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Part I – Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2010. These factors could materially affect the Company’s business, financial condition, liquidity, results of operations and capital position, and could cause the Company’s actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

Item 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

Item 3:

DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4:

(REMOVED AND RESERVED)

Item 5:

OTHER INFORMATION

Not applicable

Item 6:

EXHIBITS


Exhibit No.		Description

3.1		Restated Articles of Incorporation of Center Financial Corporation¹

3.2		Amended and Restated Bylaws of Center Financial Corporation²

3.3		Amendment to Bylaws of Center Financial Corporation³

3.4		Amendment to Articles of Incorporation of Center Financial Corporation⁴

4.1		Certificate of Determination for Series A Preferred Stock of Center Financial Corporation³

10.2		2006 Stock Incentive Plan, as Amended and Restated June 13, 2007⁵

10.3		Lease for Corporate Headquarters Office⁶

10.4		Indenture dated as of December 30, 2003 between Wells Fargo Bank, National Association, as Trustee, and Center Financial Corporation, as Issuer⁷

10.5		Amended and Restated Declaration of Trust of Center Capital Trust I, dated as of December 30, 2003⁷

10.6		Guarantee Agreement between Center Financial and Wells Fargo Bank, National Association dated as of December 30, 2003⁷

10.7		Deferred compensation plan and list of participants⁸

10.8		Split dollar plan and list of participants⁸

10.9		Survivor income plan and list of participants⁸

10.10		Warrant to Purchase Common Stock³

10.11		Letter Agreement, dated as of December 12, 2008, including the Securities Purchase Agreement – Standard Terms incorporated by reference therein, between Center Financial Corporation and the United States Department of the Treasury³

11		Statement of Computation of Per Share Earnings (included in Note 9 to Interim Consolidated Financial Statements included herein.)

31.1		Certification of Principal Executive Officer (Section 302 Certification)

31.2		Certification of Principal Financial Officer (Section 302 Certification)

32		Certification of Periodic Financial Report (Section 906 Certification)

¹	Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended June 30, 2008 and incorporated herein by reference

²	Filed as an Exhibit to the Form 8-K filed with the SEC on May 12, 2006 and incorporated herein by reference

³	Filed as an Exhibit to the Form 8-K filed with the SEC on December 16, 2008 and incorporated herein by reference

⁴	Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended March 31, 2010 and incorporated herein by reference

⁵	Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended June 30, 2007 and incorporated herein by reference

⁶	Filed as an Exhibit of the same number to the Company’s Registration Statement on Form S-4 filed with the SEC on June 14, 2002 and incorporated herein by reference

⁷	Filed as an Exhibit of the same number to the Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference

⁸	Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended March 31, 2006 and incorporated herein by reference

SIGNATURES

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

Center Financial Corporation


Date: May 9, 2011	By:	/s/ Richard S. Cupp
		Richard S. Cupp
		President & Chief Executive Officer (Principal Executive Officer)

Date: May 9, 2011	By:	/s/ Hwa Kyung Kim
		Hwa Kyung KIm Controller (Principal Financial Officer)

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