8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 30, 2003

Hanmi Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware	95-4788120
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Commission File Number: 000-30421

3660 Wilshire Blvd.
Los Angeles, California 90010

(Address of principal executive offices and zip code)

(818) 382-2200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3
EXHIBIT 99.4
EXHIBIT 99.5
EXHIBIT 99.6
EXHIBIT 99.7
EXHIBIT 99.8
EXHIBIT 99.9
EXHIBIT 99.10
EXHIBIT 99.11
EXHIBIT 99.12

ITEM 7.		FINANCIAL STATEMENTS AND EXHIBITS.
	(a)	Financial Statements of Businesses Acquired.
		Not Applicable.
	(b)	Pro Forma Financial Information.
		Not Applicable.
	(c)	Exhibits.
		Unless otherwise included herein, exhibits to the following documents are not included in, or made part of, this Current Report on Form 8-K.

Exhibit No.	Exhibit
99.1	Pacific Union Bank Annual Report on Form 10-K/A for the fiscal year ended December 31, 2002.
99.2	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
99.3	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
99.4	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
99.5	Pacific Union Bank Current Report on Form 8-K dated April 8, 2003.
99.6	Pacific Union Bank Current Report on Form 8-K dated April 21, 2003.
99.7	Pacific Union Bank Current Report on Form 8-K dated July 23, 2003.
99.8	Pacific Union Bank Current Report on Form 8-K dated August 27, 2003.
99.9	Pacific Union Bank Current Report on Form 8-K filed on September 19, 2003.
99.10	Pacific Union Bank Current Report on Form 8-K dated December 9, 2003.
99.11	Pacific Union Bank Current Report on Form 8-K dated December 22, 2003.
99.12	Description of Pacific Union Bank’s capital stock (as included in Pacific Union Bank’s Form 10 filed on June 13, 2000 as amended on June 28, 2000).

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 hereunto duly authorized.

	Hanmi Financial Corporation
Date: January 30, 2004	By:	/s/ Jae Whan Yoo
		Jae Whan Yoo
		President and Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Exhibit
99.1	Pacific Union Bank Annual Report on Form 10-K/A for the fiscal year ended December 31, 2002.
99.2	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
99.3	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
99.4	Pacific Union Bank Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
99.5	Pacific Union Bank Current Report on Form 8-K dated April 8, 2003.
99.6	Pacific Union Bank Current Report on Form 8-K dated April 21, 2003.
99.7	Pacific Union Bank Current Report on Form 8-K dated July 23, 2003.
99.8	Pacific Union Bank Current Report on Form 8-K dated August 27, 2003.
99.9	Pacific Union Bank Current Report on Form 8-K filed on September 19, 2003.
99.10	Pacific Union Bank Current Report on Form 8-K dated December 9, 2003.
99.11	Pacific Union Bank Current Report on Form 8-K dated December 22, 2003.
99.12	Description of Pacific Union Bank’s capital stock (as included in Pacific Union Bank’s Form 10 filed on June 13, 2000 as amended on June 28, 2000).

EX-99.1 3 v96038exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 - -------------------------------------------------------------------------------- FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 - -------------------------------------------------------------------------------- FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 FDIC Certificate Number 21765 PACIFIC UNION BANK (Exact name of registrant as specified in its charter) CALIFORNIA 95-2888370 State or other jurisdiction of I.R.S. Employer Identification Number incorporation or organization 3530 WILSHIRE BLVD. #1800 90010 LOS ANGELES, CALIFORNIA Zip Code Address of principal executive offices (213) 385-0909 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock- $6.00 Par Value. -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [x] The aggregate market value of Pacific Union Bank (PUBB) common stock held by non-affiliates was approximately $46,793,640 as of March 13, 2003. The number of shares of Common Stock of the registrant outstanding as of March 13, 2003 was 10,621,554. Documents Incorporated by Reference: None This Annual Report consists of a total of 79 pages. The Exhibit Index appears on page 75. - -------------------------------------------------------------------------------- This Report on Form 10-K is being amended to include all of the information called for in Items 10 through 13, which will no longer be incorporated by reference to the Bank's definitive proxy materials for the 2003 Annual Meeting of Shareholders. TABLE OF CONTENTS PART I Item 1. Business...................................................................... Item 2. Properties.................................................................... Item 3. Legal Proceedings............................................................. Item 4. Submission of Matters to a Vote of Security Holders........................... PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters........ Item 6. Selected Financial Data....................................................... Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation................................................. Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................... Item 8. Financial Statements and Supplementary Data................................... Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... PART III......................................................................................... Item 10. Directors and Executive Officers of the Registrant............................ Item 11. Executive Compensation........................................................ Item 12. Security Ownership of Certain Beneficial Owners and Management................ Item 13. Certain Relationships and Related Transactions................................ Item 14. Controls and Procedures....................................................... PART IV.......................................................................................... Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. SIGNATURES....................................................................................... CERTIFICATIONS OF DISCLOSURE CONTROLS AND PROCEDURES............................................. INDEX TO EXHIBITS................................................................................ PART I ITEM 1. BUSINESS GENERAL Pacific Union Bank is a California state-chartered commercial bank headquartered in Los Angeles, California, which commenced operations in September 1974. The Bank's primary market includes the greater Los Angeles metropolitan area, Orange County, Santa Clara County and the San Francisco metropolitan area. It is primarily focused in areas with high concentrations of Korean-Americans. In May 2000, the Bank changed its name from "California Korea Bank" to "Pacific Union Bank" in order to reflect the Bank's expectation of expanding operations beyond the State of California. The Bank currently has 12 full service branch offices, including four branches within the area of Los Angeles' Koreatown, and one in Downtown Los Angeles. Additional Southern California branch offices are located in Garden Grove, Van Nuys, Torrance, Rowland Heights and Cerritos. The two Northern California branch offices are located in Santa Clara and San Francisco. The Bank also has a loan production office ("LPO") in Seattle, Washington. The Bank's Corporate Headquarters is located at 3530 Wilshire Boulevard, Suite1800, Los Angeles, California 90010 and its main telephone number is (213) 385-0909. At December 31, 2002, the Bank had total assets of $937.0 million, total deposits of $760.0 million and total loans of $683.1 million. The Bank's deposit accounts are insured under the Federal Deposit Insurance Act, up to the maximum applicable limits thereof. The Bank is not a member of the Federal Reserve System. In August 2000 the Bank completed an initial public offering of 1,935,000 newly authorized shares of its Common Stock raising an aggregate of approximately $13.5 million in net proceeds for the Bank, after the deduction of underwriting discounts and commissions, but before the deduction of expenses of the offering. In addition, the Bank's major shareholder, Korea Exchange Bank ("KEB"), which owned 100% of the Bank's issued and outstanding shares of Common Stock prior to the offering, sold an aggregate of 1,290,000 of its shares in the public offering, the proceeds from which sale were retained by KEB. KEB currently owns approximately 62.4% of the issued and outstanding shares of the Bank's Common Stock. Upon the effectiveness of the initial public offering, the Bank's Common Stock was listed on the Nasdaq National Market and trades on the Nasdaq exchange, other primary exchanges and electronic communication networks under the symbol PUBB. Through its network of 12 full-service branch offices, the Bank provides a wide range of commercial and consumer banking services to the Korean-American communities which it serves. The Bank's primary focus is on its core customer base of small and medium-sized Korean-American businesses, professionals and other individuals. The Bank places a particular emphasis on the growth of its low cost core-deposit base and the origination of commercial and residential real estate loans. The Bank offers Korean/English bilingual services to its customers and has a network of ATMs located in eight of its branch offices. The Bank engages in a full complement of lending activities, including the making of residential and commercial real estate loans, commercial loans, trade finance, working capital lines, SBA loans, automobile loans, credit card and other personal loans. The Bank funds its lending activities primarily with retail deposits obtained through the Bank's branch network and, to a lesser extent, advances from the Federal Home Loan Bank ("FHLB") of San Francisco. The Bank's deposit products include demand deposit accounts, savings accounts, time certificates of deposit and fixed maturity installment savings. The Bank also offers safe deposit boxes, wire transfer services, travelers' checks, debit cards, cash management services and merchant deposit services. Management of the Bank does not believe there is a significant demand for additional trust services in its service area, and the Bank does not operate or have any present intention to seek authority to operate a Trust Department. The Bank has grown almost exclusively by establishing de novo full-service branch offices and LPOs. Management may consider acquisitions of other institutions or of branches of such institutions to strengthen the Bank's presence and further expand and diversify its customer base out of state. For establishment of branches outside the state of California, acquisition would most likely be the only permissible means in any states in which the Bank would be interested. The Bank has not currently identified any new markets, within or outside the State of California, other than as set forth below, in which it intends to acquire or establish a new branch office. The Bank was in the process in 2000 of negotiating with KEB to acquire certain assets and assume certain liabilities of one of KEB's FDIC insured branches in New York, New York (the "KEB branch"). In May 2000, KEB together with its U.S. Branches entered into a consent order to rectify deficiencies of the Bank Secrecy Act ("BSA") with the Federal Reserve Board and the relevant state banking authorities, including the California Department of Financial Institutions, as a result of which the Bank determined to suspend negotiation with respect to the acquisition of the KEB branch. Subsequently, in March 2002, the Bank entered into a similar consent order concerning BSA deficiencies (see Item 3. "Legal Proceedings" below). The Management intends to reevaluate the proposed acquisition of the KEB branch as soon as it is practicable to do so following the lifting of the consent orders; however, there can be no assurance that the consent orders will be lifted in the near future or that if lifted the Bank and KEB will determine to proceed with the acquisition of the assets and liabilities of the KEB branch. The Bank holds no patents or licenses (other than licenses required to be obtained from appropriate bank regulatory agencies), franchises, or concessions. The Bank's business is not seasonal. The Bank is not dependent on a single customer or group of related customers for a material portion of its deposits, nor is a material portion of the Bank's loans concentrated within a single industry or group of related industries. There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local environmental regulation. The Bank has no plans regarding a new line of business requiring the investment of a material amount of total assets. The officers and employees of the Bank are engaged continually in marketing activities, including the evaluation and development of new services, which enable the Bank to retain and improve its competitive position in its service area. The Bank has not engaged in any material research activities relating to the development of new services or the improvement of existing banking services during the last two fiscal years. DEPOSIT SERVICES The Bank offers a wide variety of deposit products including noninterest-bearing demand accounts, money market accounts, Super NOW accounts, savings accounts and certificates of deposit. As of December 31, 2002, the Bank had approximately 45,900 deposit accounts with an average balance per account of $17,000, compared to 45,200 deposit accounts with an average balance of $15,000 per account at December 31, 2001. At December 31, 2002, the Bank's deposits consisted of $223.4 million or 29.4% in noninterest-bearing demand accounts; $126.3 million or 16.6% in money market accounts; $7.6 million or 1.0% in Super NOW accounts; $44.2 million or 5.8% in savings accounts and $358.5 million or 47.2% in time certificates of deposit. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation - Deposits." Most of the Bank's deposits are received from individuals, business-related sources and some municipal entities. This results in a relatively modest average deposit balance, but makes the Bank less subject to adverse effects from the loss of a substantial depositor who may be seeking higher yields in other markets or who may otherwise have need of money on deposit with the Bank, especially during periods of inflation or conservative monetary policies. LENDING ACTIVITIES The Bank engages in a full complement of lending activities, including residential and commercial real estate loans, commercial loans, trade finance, working capital lines, SBA loans, automobile loans, credit card and other personal loans. As of December 31, 2002, the principal areas in which the Bank directed its lending activities, and the percentage of the total loan portfolio for which each of these areas was responsible, were as follows: (i) commercial real estate loans 57.9%; (ii) commercial and industrial loans 18.4%; (iii) SBA loans 10.9%; (iv) residential estate loans 5.5%; and (v) "Bills Bought" (extensions of credit to banks in South Korea in the form of letters of credit discount transactions) 1.0%. A detailed description of the Bank's lending activities is included in Item 7 --" "Management's Discussion and Analysis of Financial Condition and Results of Operations(Y)Financial Condition(Y)Loan Portfolio" below. INTERNET BANKING In January 2001, the Bank introduced an Internet banking service. The Internet banking service allows our customers to access their loan and deposit accounts through the Internet. Customers are able to obtain transaction history, account information and transfer funds between accounts. In April 2001, bill payment through the Internet was introduced which allows the customer to make various payments. We are in the process of implementing Cash Management Service via the Internet and expect to complete this in the near future. Cash Management Service via the Internet is designed to support the cash management needs of small business customers by making their companies' finances more easily and efficiently accessible using the Internet. The Bank continues to review and implement new products and delivery channels using information technology. COMPETITION The banking business in the Bank's present and intended future market areas is highly competitive with respect to virtually all products and services and has become increasingly so in recent years. While the banking market in the Bank's primary market area is generally dominated by a relatively small number of major banks with many offices operating over a wide geographic area, the Bank's direct competitors in its niche market tend to be similarly sized community banks which also focus their businesses on Korean-American consumers and businesses. There is a high level of competition within this specific niche. In the greater Los Angeles metropolitan area, the Bank's main competitors are seven locally owned and operated Korean-American banks including a bank which was opened in 2002 and one subsidiary of a South Korean bank. Currently, there is one Korean-American bank in the process of forming in the Los Angeles metropolitan area. In 2002, one additional local Korean-American bank servicing Orange County was opened. These banks have branches located in many of the same neighborhoods as the Bank, provide similar types of products and services and use the same Korean language publications and media for their marketing purposes. A less significant source of competition in the Los Angeles metropolitan area are a small number of branches of major banks which maintain a limited bilingual staff for Korean-speaking customers. While such banks have not traditionally focused their marketing efforts on the Bank's customer base in Southern California, their competitive influence could increase should they in the future choose to focus on this market. In Northern California, there are currently one local Korean-American bank, two branches of a Los Angeles-based Korean-American bank and one LPO of a local Korean-American bank as well as branch offices of major or regional commercial banks. In Seattle, there is one local Korean-American bank serving the banking needs of the local Korean-American community. In addition to the Bank, currently three other Los Angeles-based Korean-American banks operate LPO's in the Seattle area. In addition to competition from banks in its niche market, the Bank competes with large commercial banks which have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their investment resources to areas of highest yield and demand. Many of the major banks operating in the Bank's market area offer certain services which the Bank does not offer directly (but some of which the Bank offers through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits (restricted to a percentage of the Bank's total stockholders' equity, depending upon the nature of the loan transaction) than the Bank. Competitors also include savings institutions, credit unions, and numerous non-banking institutions, such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from specialized finance and non-finance companies that offer money market and mutual funds, wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers. To an extent the Bank is affected by more general competitive trends in the industry, those trends are towards increased consolidation and competition. Strong, unregulated competitors have entered banking markets with focused products targeted at highly profitable customer segments. Many largely unregulated competitors are able to compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. Mergers between financial institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to federal and state interstate banking laws, which permit banking organizations to expand geographically, and the California market has been particularly attractive to out-of-state institutions. The recently enacted Financial Modernization Act effective March 11, 2000, which has made it possible for full affiliations to occur between banks and securities firms, insurance companies, and other financial companies, is also expected to intensify competitive conditions. See "Regulation and Supervision-- Financial Modernization Act" below. Technological innovations have also resulted in increased competition in the financial services industry. Such innovations have, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that previously have been considered traditional banking products. In addition, many customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer, ATMs, self-service branches and/or in-store branches. In addition to other banks, the sources of competition for such hi-tech products include savings associations, credit unions, brokerage firms, money market and other mutual funds, asset management groups, finance and insurance companies, and mortgage banking firms. To some extent the effect of such competition on the Bank is limited by the lack of availability of various technological advancements with Korean language capability. However, as such technology becomes available, the competitive pressure on the Bank to be at the forefront of such advancements is significant. EMPLOYEES As of December 31, 2002, the Bank had a total of 250 full time employees and 15 part-time employees. Three of these individuals are seconded KEB employees who are expected to return to KEB after their service at the Bank, and were appointed to their current positions in accordance with KEB's management rotation system. In addition, the CEO is a former KEB employee who was appointed to the Bank upon his retirement from KEB. KEB intends to continue to have significant involvement in the selection of individuals to fill certain of the Bank's management positions. See "Risk Factors-Management Rotation." REGULATION AND SUPERVISION GENERAL. The following discussion of statutes and regulations affecting banks is only a summary and does not purport to be complete. This discussion is qualified in its entirety by reference to such statutes and regulations. No assurance can be given that such statutes or regulations will not change in the future. As a California state-chartered bank whose accounts are insured by the FDIC up to a maximum of $100,000 per depositor, the Bank is subject to regulation, supervision and regular examination by the Department of Financial Institutions (the "DFI") and the FDIC. In addition, while the Bank is not a member of the Federal Reserve System, it is subject to certain regulations of the Board of Governors of the Federal Reserve (the "FRB"). The regulations of these agencies govern most aspects of the Bank's business, including the making of periodic reports by the Bank, and the Bank's activities relating to dividends, investments, loans, borrowings, capital requirements, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits and numerous other areas. Supervision, legal action and examination of the Bank by the regulatory agencies are generally intended to protect depositors and are not intended for the protection of stockholders. The earnings and growth of the Bank are largely dependent on its ability to maintain a favorable differential or "spread" between the yield on its interest-earning assets and the rate paid on its deposits and other interest-bearing liabilities. As a result, the Bank's performance is influenced by general economic conditions, both domestic and foreign, the monetary and fiscal policies of the federal government, and the policies of the regulatory agencies, particularly the FRB. The FRB implements national monetary policies (such as seeking to curb inflation and combat recession) through its open-market operations in the United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rate applicable to borrowings by banks which are members of the Federal Reserve System. The actions of the FRB in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and deposits. The nature and impact of any future changes in monetary policies cannot be predicted. CAPITAL ADEQUACY REQUIREMENTS. The Bank is subject to the regulations of the FDIC governing capital adequacy. Those regulations incorporate both risk-based and leverage capital requirements. Each of the federal regulators has established risk-based and leverage capital guidelines for the banks or bank holding companies it regulates, which set total capital requirements and define capital in terms of "core capital elements," or Tier 1 capital; and "supplemental capital elements," or Tier 2 capital. Tier 1 capital is generally defined as the sum of the core capital elements less goodwill and certain other deductions, notably the unrealized net gains or losses (after tax adjustments) on available-for-sale investment securities carried at fair market value. The following items are defined as core capital elements: (i) common stockholders' equity; (ii) qualifying noncumulative perpetual preferred stock and related surplus; and (iii) minority interests in the equity accounts of consolidated subsidiaries. Supplementary capital elements include: (i) allowance for loan and lease losses (but not more than 1.25% of an institution's risk-weighted assets); (ii) perpetual preferred stock and related surplus not qualifying as core capital; (iii) hybrid capital instruments, perpetual debt and mandatory convertible debt instruments; and (iv) term subordinated debt and intermediate-term preferred stock and related surplus. The maximum amount of supplemental capital elements which qualifies as Tier 2 capital is limited to 100% of Tier 1 capital, net of goodwill. The Bank is required to maintain a minimum ratio of qualifying total capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital Ratio"), at least one-half of which must be in the form of Tier 1 capital ("Tier 1 Risk-Based Capital Ratio"). Risk-based capital ratios are calculated to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit and recourse arrangements, which are recorded as off-balance sheet items. Under the risk-based capital guidelines, the nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans. As of December 31, 2002 and 2001, the Bank's Total Risk-Based Capital Ratios were 15.95% and 16.07%, respectively and its Tier 1 Risk-Based Capital Ratios were 14.70% and 14.82%, respectively. The federal banking agencies have revised the risk-based capital standards to take adequate account of concentrations of credit (i.e., relatively large proportions of loans involving one borrower, industry, location, collateral or loan type) and the risks of "non-traditional" activities (those that have not customarily been part of the banking business). The regulations require institutions with high or inordinate levels of risk to operate with higher minimum capital standards, and authorize the regulators to review an institution's management of such risks in assessing an institution's capital adequacy. The federal banking agencies have also revised the risk-based capital regulations to include exposure to interest rate risk as a factor that the regulators will consider in evaluating a bank's capital adequacy. Interest rate risk is the exposure of a bank's current and future earnings and equity capital arising from adverse movements in interest rates. While interest risk is inherent in a bank's role as financial intermediary, it introduces volatility to bank earnings and to the economic value of the bank. Banks are also required to maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks that have received the highest rating of the five categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage Capital Ratio") of at least 3%. All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a minimum of 4% to 5%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans, and federal regulators may, however, set higher capital requirements when a bank's particular circumstances warrant. As of December 31, 2002 and 2001, the Bank's Leverage Capital Ratios were 11.56% and 10.77%, respectively. PROMPT CORRECTIVE ACTION PROVISIONS Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured financial institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The federal banking agencies have by regulation defined the following five capital categories: "well capitalized" (Total Risk-Based Capital Ratio of 10%; Tier 1 Risk-Based Capital Ratio of 6%; and Leverage Ratio of 5%) and not subject to any regulatory order, agreement or directive; "adequately capitalized" (Total Risk-Based Capital Ratio of 8%; Tier 1 Risk-Based Capital Ratio of 4%; and Leverage Ratio of 4%) (or 3% if the institution receives the highest rating from its primary regulator); "undercapitalized" (Total Risk-Based Capital Ratio of less than 8%; Tier 1 Risk-Based Capital Ratio of less than 4%; or Leverage Ratio of less than 4%) (or 3% if the institution receives the highest rating from its primary regulator); "significantly undercapitalized" (Total Risk-Based Capital Ratio of less than 6%; Tier 1 Risk-Based Capital Ratio of less than 3%; or Leverage Ratio less than 3%); and "critically undercapitalized" (tangible equity to total assets less than 2%). A bank may be treated as though it were in the next lower capital category if after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice so warrants, but no bank may be treated as "critically undercapitalized" unless its actual capital ratio warrants such treatment. Although the Bank meets the minimum total risk-based, Tier I risk based and Tier 1 leverage ratios to be considered well-capitalized, because it is currently subject to a consent order concerning its BSA deficiencies, it is not currently considered to be well-capitalized. (See Item 3. "Legal Proceedings") At each successively lower capital category, an insured bank is subject to increased restrictions on its operations. For example, a bank is generally prohibited from paying management fees to any controlling persons or from making capital distributions if to do so would make the bank "undercapitalized." Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting specified requirements (including a guarantee by the parent holding company, if any). "Significantly undercapitalized" banks are subject to broad regulatory authority, including among other things, capital directives, forced mergers, restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying certain bonuses without FDIC approval. Even more severe restrictions apply to critically undercapitalized banks. Most importantly, except under limited circumstances, not later than 90 days after an insured bank becomes critically undercapitalized, the appropriate federal banking agency is required to appoint a conservator or receiver for the bank. In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to potential actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the issuance of cease and desist orders, termination of insurance of deposits (in the case of a bank), the imposition of civil money penalties, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against "institution-affiliated" parties. SAFETY AND SOUNDNESS STANDARDS The federal banking agencies have adopted final guidelines establishing safety and soundness standards for all insured depository institutions. Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation and interest rate exposure. In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan and institute enforcement proceedings if an acceptable compliance plan is not submitted. PREMIUMS FOR DEPOSIT INSURANCE The FDIC has adopted final regulations implementing a risk-based premium system, whereby insured depository institutions are required to pay insurance premiums depending on their risk classification. Under this system, institutions such as the Bank which are insured by the Bank Insurance Fund ("BIF"), are categorized into one of three capital categories (well capitalized, adequately capitalized, and undercapitalized) and one of three supervisory categories based on federal regulatory evaluations. The three supervisory categories are: financially sound with only a few minor weaknesses (Group A), demonstrates weaknesses that could result in significant deterioration (Group B), and poses a substantial probability of loss (Group C). The capital ratios used by the FDIC to define well capitalized, adequately capitalized and undercapitalized are the same in the FDIC's prompt corrective action regulations. The current BIF base assessment rates (expressed as cents per $100 of deposits) are summarized as follows:

Group A Group B Group C ------- ------- ------- Well Capitalized................................... 0 3 10 Adequately Capitalized............................. 3 10 24 Undercapitalized................................... 17 24 27

In addition, BIF member banks (such as the Bank) must pay an amount which fluctuates but is currently 1.68 basis points, or cents per $100 of insured deposits, towards the retirement of the Financing Corporation bonds issued in the 1980's to assist in the recovery of the savings and loan industry. COMMUNITY REINVESTMENT ACT The Bank is subject to certain requirements and reporting obligations involving Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. The CRA further requires the agencies to take a financial institution's record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions, or holding company formations. In measuring a bank's compliance with its CRA obligations, the regulators now utilize a performance-based evaluation system which bases CRA ratings on the bank's actual lending service and investment performance, rather than on the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other procedural requirements. In connection with its assessment of CRA performance, the FDIC assigns a rating of "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance." The Bank was last examined for CRA compliance in April 2001 and received an "outstanding" CRA Assessment Rating. OTHER CONSUMER PROTECTION LAWS AND REGULATIONS The bank regulatory agencies are increasingly focusing attention on compliance with consumer protection laws and regulations. Examination and enforcement has become intense, and banks have been advised to carefully monitor compliance with various consumer protection laws and their implementing regulations. The federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in home mortgage lending describing three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment, and evidence of disparate impact. In addition to CRA and fair lending requirements, the Bank is subject to numerous other federal consumer protection statutes and regulations. Due to heightened regulatory concern related to compliance with consumer protection laws and regulations generally, the Bank may incur additional compliance costs or be required to expend additional funds for investments in the local communities it serves. INTERSTATE BANKING AND BRANCHING The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act") regulates the interstate activities of banks and bank holding companies and establishes a framework for nationwide interstate banking and branching. Since June 1, 1997, a bank in one state has generally been permitted to merge with a bank in another state without the need for explicit state law authorization. However, states were given the ability to prohibit interstate mergers with banks in their own state by "opting-out" (enacting state legislation applying equality to all out-of-state banks prohibiting such mergers) prior to June 1, 1997. Since 1995, adequately capitalized and managed bank holding companies have been permitted to acquire banks located in any state, subject to two exceptions: first, any state may still prohibit bank holding companies from acquiring a bank which is less than five years old; and second, no interstate acquisition can be consummated by a bank holding company if the acquirer would control more than 10% of the deposits held by insured depository institutions nationwide or 30% percent or more of the deposits held by insured depository institutions in any state in which the target bank has branches. A bank may establish and operate de novo branches in any state in which the bank does not maintain a branch if that state has enacted legislation to expressly permit all out-of-state banks to establish branches in that state. In 1995 California enacted legislation to implement important provisions of the Interstate Banking Act discussed above and to repeal California's previous interstate banking laws, which were largely preempted by the Interstate Banking Act. The changes effected by Interstate Banking Act and California laws have increased competition in the environment in which the Bank operates to the extent that out-of-state financial institutions directly or indirectly enter the Bank's market areas. It appears that the Interstate Banking Act has contributed to the accelerated consolidation of the banking industry. While many large out-of-state banks have already entered the California market as a result of this legislation, it is not possible to predict the precise impact of this legislation on the Bank and the competitive environment in which it operates. FINANCIAL MODERNIZATION ACT Effective March 11, 2000, the Gramm-Leach-Bliley Act eliminated most barriers to affiliations among banks and securities firms, insurance companies, and other financial service providers, and enabled full affiliations to occur between such entities. This new legislation permits bank holding companies to become "financial holding companies" and thereby acquire securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the FDICIA prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the CRA by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. The Gramm-Leach-Bliley Act defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. A national bank (and therefore, a state bank as well) may also engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory CRA rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory or better. The Gramm-Leach-Bliley Act also imposes significant new requirements on financial institutions with respect to the privacy of customer information, and modifies other existing laws, including those relating to community reinvestment. USA PATRIOT ACT OF 2001 On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (the "USA Patriot Act"). Enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001, the Patriot Act is intended to strengthen U.S. law enforcement's and the intelligence communities' ability to work cohesively to combat terrorism on a variety of fronts. The potential impact of the USA Patriot Act on financial institutions of all kinds is significant and wide ranging. The Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations applicable to financial institutions, including: i. due diligence requirements for financial institutions that administer, maintain, or manage private banks accounts or correspondent accounts for non-U.S. persons; ii. standards for verifying customer identification at account opening; and iii. rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. During 2002, the Federal Crimes Enforcement Network (FinCEN), a bureau of the Department of Treasury, issued regulations to implement various provisions of the Patriot Act. The Bank implemented the requirements of the Patriot Act during 2001 and 2002. Compliance with such requirements has substantially in connection with strengthening the Bank's BSA compliance procedures which it was otherwise required to do, and as such did not involve any material additional expenditures to comply with the USA Patriot Act specifically. The actions taken to enhance BSA compliance are described in detail in "Item 3 - Legal Proceedings" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Noninterest Expense." SARBANES-OXLEY ACT OF 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Exchange Act. In particular, the Sarbanes-Oxley Act establishes: i. new requirements for audit committees, including independence, expertise, and responsibilities; ii. additional responsibilities regarding financial statements for the chief executive officer and chief financial officer of the reporting company; iii. new standards for auditors and regulation of audits; iv. increased disclosure and reporting obligations for the reporting company and their directors and executive officers and; v. new and increased civil and criminal penalties for violation of the securities laws. Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition. The Sarbanes-Oxley Act generally prohibits loans by the Bank to its executive officers and directors. However, the Act contains a specific exception from such prohibitions for loans by the Bank to its executive officers and directors in compliance with federal banking regulations restrictions on such loans. The Bank's authority to extend credit to affiliates, is also governed by federal law. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and that do not involve more than normal risk of repayment. OTHER PENDING AND PROPOSED LEGISLATION Other legislative and regulatory initiatives which could affect the Bank and the banking industry in general are pending, including an initiative that would permit the payment of interest on business checking accounts, and additional initiatives may be proposed or introduced, before the United States Congress, the California legislature and other governmental bodies in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Bank would be affected thereby. RISK FACTORS You should carefully consider the following risk factors and all other information contained in this annual report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial also may impair our business. If any of the events described in the following risk factors occur, our business, results of operations and financial condition could be materially adversely affected. In addition, the trading price of our common stock could decline due to any of the events described in these risks. CONTROL OF THE BANK BY KEB KEB owns approximately 62.4% of the Bank's Common Stock. In addition, while KEB may sell additional shares of its Common Stock in the future, KEB has indicated that it does not intend to allow its ownership level in the Bank to decrease below a majority of the Bank's issued and outstanding shares for the foreseeable future, except under certain circumstances. Specifically, KEB has indicated to the Bank that in the case of a merger or acquisition in which the Bank issues stock as part of the purchase price, KEB may consider allowing its ownership of the Bank to decrease to below 50%. However, there is no assurance that KEB will agree to do so. As long as KEB maintains its majority interest, KEB will continue to be able to elect a majority of the Bank's directors, and effectively control the shareholder vote on any and all matters, including determinations such as approval of mergers or other business combinations, sales of assets, and any other matters submitted to shareholders. In addition, KEB's policies or the bank regulatory authorities of South Korea may require the Bank to consult with KEB prior to making certain business or budgeting decisions, organizational changes, or revisions to certain policies. While in general KEB's interests would tend to be consistent with those of the Bank's other shareholders, there can be no assurance that this will always be the case. KEB's ability to prevent a change in control of the Bank could have an adverse effect on the market price for the Bank's Common Stock by discouraging bids that might result in a premium over the market price for the holders of the Common Stock. The Bank's current Board of Directors consists of a majority of outside directors (i.e., directors who are neither employees of the Bank nor KEB); however, KEB's majority ownership would allow KEB to change the composition of the Bank's Board of Directors so that the Bank would not have a majority of outside directors. POOR ECONOMIC CONDITIONS IN SOUTHERN CALIFORNIA MAY CAUSE THE BANK TO SUFFER HIGHER DEFAULT RATES ON ITS LOANS A substantial majority of the Bank's assets and deposits are generated in the greater Los Angeles area in Southern California. As a result, poor economic conditions in the Los Angeles area may cause us to incur losses associated with higher default rates and decreased collateral values in the loan portfolio. The Los Angeles area has experienced a downturn in economic activity in line with the slowdown in California during the past year. Economic activity slowed significantly immediately following the September 11, 2001 terrorist attacks. Unemployment levels have increased since mid 2001, especially in Los Angeles County, which is our geographic center and the base of our deposit and lending activity. In addition, it is likely that the negative effect on the national economy as a result of the war against Iraq will be significant. In the early 1990s, the entire state of California experienced an economic recession that resulted in increases in the level of delinquencies and losses for many of the state's financial institutions. Although, the Bank's level of nonperforming assets in 2002 decreased from its level of non-performing assets in 2001, and should the current conditions deteriorate, we expect that our level of problem assets would increase accordingly. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation - Nonperforming Assets." DIVIDENDS Prior to the Bank's initial public offering, KEB, as the sole shareholder of the Bank, had been paid cash dividends from time to time. The Bank paid a $8 million cash dividend in 2000. However, the Bank's dividend payment history with KEB is not indicative of cash dividends to be paid in the future, and the Bank has not paid a cash dividend since the payment of a cash dividend to KEB in 2000. The decision to pay cash dividends in the future is solely within the discretion of the Bank's Board of Directors, subject to compliance with legal and regulatory requirements as well as the receipt of any necessary regulatory approvals. The Bank's ability to pay cash dividends in the future will depend on the Bank's profitability, growth and capital needs. No assurance can be given whether or in what amounts any dividends will be declared or whether any such dividends, once declared, will continue to be paid in subsequent years. MANAGEMENT ROTATION Prior to the Bank's initial public offering, KEB had traditionally appointed certain members of the Bank's senior management team pursuant to a rotation system whereby KEB assigned selected employees from KEB to work at the Bank for a temporary period. Such employees returned to KEB after completion of their assignment at the Bank. This practice has continued since the initial public offering, although the Bank has reduced the total number of such officers. KEB's continued involvement in the selection of management could result in a lesser degree of management continuity and knowledge of local market conditions than would be the case for a locally-owned and operated institution, and could therefore have an adverse impact on the Bank's operations. Both KEB and the Bank intend to use their best efforts to promote the continuity and stability of Bank management. However, no assurance can be given that the Bank will be successful in retaining any specific existing members of senior management. MANAGEMENT OF GEOGRAPHIC EXPANSION The Bank's current business strategy includes expanding its operations geographically into select metropolitan areas with large Korean-American populations through the acquisition or opening of new branches and LPO's. In July 2001, the Bank opened its Silicon Valley office as a full service branch office and closed its San Jose LPO, which was opened in July 2000 in San Jose, Northern California. In May 2000 the Bank opened its first LPO, which is located in the greater Seattle area. The Bank's recent and anticipated future growth outside of its current market area could place extra demands on the Bank's Management, personnel, systems, asset quality, earnings, policies and procedures and present problems not faced when the Bank concentrated its branch network within a relatively concentrated geographic area. There can be no assurance that the Bank will be able to make all adjustments necessary to employ and retain personnel with adequate training and experience to manage the anticipated geographical expansion of the Bank which will necessitate, among other things, developing knowledge and expertise in new markets and familiarity with the laws and regulations of other states. The failure to manage such geographic expansion effectively could have a material adverse effect on the Bank's business, cash flows, financial condition and results of operations. See "Item 1. Business- General". LOAN CONCENTRATIONS Approximately $395.8 million or 57.9% of the Bank's loan portfolio at December 31, 2002, and $312.0 million or 54.4% of the Bank's loan portfolio at December 31, 2001 were concentrated in commercial real estate loans. Although commercial loans generally provide for higher interest rates and shorter terms than single family residential loans, such loans generally involve a higher degree of risk, as the ability of borrowers to repay these loans is often dependent upon the profitability of the borrowers' businesses. An increase in the percentage of nonperforming assets in the Bank's commercial real estate, commercial and industrial loan portfolio may have a material impact on the Bank's financial condition and results of operations. The Bank's loan portfolio is also predominantly secured by real estate in California. Conditions in the California real estate market can and historically have strongly influenced the level of the Bank's nonperforming loans and its results of operations. Real estate values are affected by, among other things, changes in general or local economic conditions, changes in governmental rules or policies, the availability of loans to potential purchasers and acts of nature. In the early 1990's, the California economy experienced an economic recession that resulted in increases in the level of delinquencies and losses for the Bank as well as for many of the state's other financial institutions. Another recession in California, particularly with respect to real estate prices, or the occurrence of a natural disaster, could have a material adverse effect on the Bank. See "Poor Economic Conditions May Cause us to Incur Losses, " above. In addition, historically, California has experienced, on occasion, significant natural disasters, including earthquakes, brush fires and, during early 1998, flooding attributed to the weather phenomenon known as "El Nino." The availability of insurance for losses from such catastrophes is limited. The occurrence of one or more of such catastrophes could impair the value of the collateral for the Bank's real estate secured loans and adversely affect the Bank. Further, during 2002 real estate prices in Southern California, including the Los Angeles area, rose precipitously. If real estate prices were to fall in Southern California, the security for many of our real estate secured loans could be reduced and we could incur significant losses if borrowers of real estate secured loans default, and the value of our collateral is insufficient to cover our losses. ASSET QUALITY The Southern California economy and the real estate market in particular suffered from the effects of a recession in the first half of the 1990's. Some of the effects of the recession were declines in property values and decreased demand for goods and services. The recession also had an adverse effect on the ability of certain borrowers to perform under the original terms of their obligations to the Bank. The Bank was adversely affected by these market conditions due to its lending focus on secured real estate loans, government guaranteed loans and other commercial loans, both unsecured and secured by real estate and other assets. Economic conditions in Southern California have again deteriorated in 2002. This deterioration, if prolonged or intensified, would likely have a material adverse effect on the cash flows of borrowers and their ability to repay outstanding loans, the value of the Bank's real estate and the demand for new loan originations and could negatively impact the Bank's financial condition or results of operations. A significant source of risk for the Bank arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. For last three years, the Bank incurred no losses on its commercial real estate loan portfolio. The Bank has adopted underwriting and credit monitoring procedures and credit policies that Management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying the Bank's loan portfolio. Such policies and procedures, however, may not prevent unexpected losses that could materially adversely affect the Bank's financial condition or results of operations. LOAN LOSS ALLOWANCE MAY NOT COVER ACTUAL LOANS LOSSES The Bank maintains an allowance for loan losses at a level which it believes is adequate to absorb any inherent losses in its loan portfolio. However, changes in economic, operating and other conditions may cause its actual loan losses to exceed its current allowance estimates. For the foreseeable future, the Bank anticipates that the allowance for loan losses will remain approximately at current levels. No assurance can be given that the amounts of the required provisions for loan losses will in fact correspond to such projections, that the actual loan growth will be consistent with projections, or that the Bank may not sustain unexpected credit deterioration or losses which would increase the required amount of the provisions, thereby adversely affecting the Bank's earnings. See Item 7. "Management Discussion and Analysis of Financial Condition and Results of Operation -- Provision for Loan Losses" and "Nonperforming Assets -- Allowance for Loan Losses." In addition, the FDIC and the Department of Financial Institutions, as an integral part of their respective supervisory functions, periodically review the Bank's allowance for loan losses. Such regulatory agencies may require the Bank to increase its provision for loan losses or to recognize further loan charge-offs, based upon judgments different from those of management. Any increase in the Bank's allowance required by the FDIC or the Department of Financial Institutions could adversely affect the Bank. IMPACT OF SOUTH KOREAN ECONOMIC CONDITIONS Because a significant portion of the Bank's customer base is Korean-American, the Bank has historically had exposure to the economy of South Korea (the "Korean Economy") with respect to certain of its loans and credit transactions. Such exposure has consisted of (i) extensions of credit to banks in South Korea in the form of letters of credit discount transactions ("Bills Bought"); (ii) loans to borrowers in the U. S. secured by stand-by letters of credit issued by banks in South Korea ("Korean L/C Loans"); and (iii) loans to U. S. affiliates/subsidiaries of companies in South Korea ("Korean Affiliate Loans"). The current economic condition in South Korea is recovering from the economic crisis in late 1990's. Management closely monitors the Bank's exposure to the Korean Economy even though the Bank has not experienced any losses in connection with this type of lending for at least the past five years. The Bank also instituted new underwriting policies regarding Korean Affiliate Loans. Under the new policies the Bank will not make any new Korean Affiliate Loans unless the borrower meets all applicable underwriting criteria on a stand-alone basis. Renewals of Korean Affiliate Loans of current borrowers and amounts will be permitted on the basis of both credit factors and in consideration of parent/guarantor capacity to perform. In addition to the three types of credit extensions described above, the Bank has historically issued performance letters of credit on behalf of certain large, internationally-known Korean companies in connection with such companies' transactions in the U. S. The Bank has not experienced any losses with respect to such letters of credit for at least the past six years, and all of the customers for whom such letters of credit have been issued are substantial depositors which have typically maintained balances in excess of the amounts of such letters of credit. Notwithstanding the Bank's efforts to minimize its exposure to downturns in the Korean economy with respect to the above-described credit extensions, there can be no assurance that the Bank's efforts will be successful, and another significant downturn in the Korean Economy could result in significant credit losses for the Bank. In addition to credit risks, because the Bank's customer base is largely Korean-American, the Bank's deposit base could significantly decrease as a result of a deterioration of the Korean Economy. Management believes that this may result because some of the Bank's customers may need funds for their local businesses which may be impacted by the Korean Economy, or may temporarily withdraw deposits in order to transfer funds and benefit from gains on foreign exchange and interest rates and/or to help their relatives or parent companies in South Korea during downturns in the Korean Economy. A significant decrease in the Bank's deposits could also have a material adverse effect on the financial condition and results of operations of the Bank. SHARES AVAILABLE FOR FUTURE SALE The future sale of a substantial number of shares of Common Stock by KEB, or the perception that such sales could occur, could have an adverse effect on the market price of the Common Stock. POTENTIAL STATE TAX LIABILITY The Bank pays California state franchise taxes on the taxable income allocated from the combined taxable income of KEB's branches and affiliates in the United States, including the Bank, using the apportionment factors of California property, payroll and revenues over combined property, payroll and revenue of KEB's branches and its affiliates in the United States under the Water's Edge Unitary method, which applies if KEB owns more than a 50% interest in the Bank. To the extent that the Bank's taxable income, as a percentage of the combined taxable income, is more or less than the apportionment percentage, the actual California franchise tax liability and expense of the Bank may be higher or lower than if the Bank were not part of the combined KEB group. It is possible that the Bank could have no taxable income in a particular year, but that based on the taxable income of the other entities in the group, the Bank's state tax liability could be substantial. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" - "Provision for Income Taxes" and "Taxation." COMPETITION The banking business in the Bank's current and intended future market areas is highly competitive with respect to virtually all products and services. While the California banking market in general is dominated by a relatively small number of major banks with many offices operating over a wide geographic area, the Bank's direct competitors in its Southern California niche market currently consist primarily of seven locally owned and operated Korean-American banks and one subsidiary of a South Korean bank which focus their businesses on Korean-American consumers and businesses. There is a high level of competition within this specific niche. While major banks have not historically focused their marketing efforts on the Bank's Korean-American customer base in Southern California, their competitive influence could increase in the future. Similar competitive factors exist in the Bank's other existing and potential geographical markets, except that more of the Bank's competition outside of Southern California comes from major or regional banks. In addition to competitive factors impacting its specific market niche, the Bank is affected by more general competitive trends in the banking industry, including intra-state and interstate consolidation, competition from non-bank sources and technological innovations. Many of the Bank's competitors have advantages over the Bank in conducting certain businesses and providing certain services, and there can be no assurance that the Bank will be able to successfully compete in its current markets or markets into which it expands. See Item 1. "Business - Competition." EARTHQUAKES AND OTHER NATURAL DISASTERS Southern California, San Francisco and the Silicon Valley, where most of the Bank's properties, and most of the real and personal properties securing the Bank's loans are located, are prone to earthquakes, flooding and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major earthquake, flood or other natural disaster, the Bank faces the risk that many of its borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. A major earthquake, flood or other natural disaster in California could have a material adverse effect on the Bank's business, financial condition, results of operations and cash flows. The Bank does not require its secured loan customers to obtain earthquake insurance on the real property securing such loans as such insurance is often unavailable or prohibitively expensive. A significant portion of the Bank's loan portfolio is secured by real property located in either Koreatown or in the garment district of downtown Los Angeles, and a substantial portion of the Bank's unsecured borrowers are located in the greater Los Angeles area. An earthquake or other natural disaster affecting the greater Los Angeles area could adversely affect the businesses of such borrowers and the properties securing the Bank's loans and result in a material adverse effect on the Bank's financial condition and results of operations. MONETARY POLICY AND ECONOMIC CONDITIONS The Bank's net income depends to a large extent on its ability to maintain a favorable differential or "spread" between the rates earned on its loans and other interest-earning assets and the rates paid on its deposits and other interest-bearing liabilities. These rates are highly sensitive to many factors that are beyond the Bank's control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular the Board of Governors of the Federal Reserve System. In addition, future adverse economic conditions or changes in regulatory policies or procedures could make a higher provision for loan losses prudent and could cause higher loan charge-offs, thus adversely affecting the Bank's net earnings. See Item 1. "Business- Regulation and Supervision" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk/Interest Rate Risk Management." GOVERNMENT REGULATION AND LEGISLATION The Bank is subject to extensive state and federal regulation, supervision and legislation, and the laws that govern the Bank and its operations are subject to change from time to time. These laws and regulations increase the cost of doing business and have an adverse impact on the Bank's ability to compete efficiently with other financial service providers that are not similarly regulated. Changes in regulatory policies or procedures could result in Management determining that a higher provision for loan losses was necessary and could cause higher loan charge-offs, thus adversely affecting the Bank's net earnings. There can be no assurance that future regulation or legislation will not impose additional requirements and restrictions on the Bank in a manner that will adversely affect its results of operations, cash flows, financial condition and prospects. In addition, certain transactions involving the Bank such as acquisitions or other investments by the Bank as well as any transactions involving the Bank to which KEB is a party, such as the proposed acquisition of the New York branch office of KEB will be subject to notification and/or approval requirements pursuant to the South Korean banking laws and regulations, as administered by the South Korean bank regulatory authorities in the exercise of their jurisdiction over KEB. See Item 1. "Business - Regulation and Supervision." ITEM 2. PROPERTIES Pacific Union Bank's principal office is located at 3530 Wilshire Boulevard, #1800, Los Angeles, California. The office is leased pursuant to a 10-year term lease which expires on December 9, 2008 plus an option to renew for a term of five years. The following table sets forth information about the Bank's owned and leased properties:

NAME LOCATION USE OF FACILITIES OWNED/LEASED ---- -------- ----------------- ------------ Corporate Headquarters 3530 Wilshire Boulevard, #1800, Los Angeles, California Main Office Leased Wilshire Office 3245 Wilshire Boulevard, Los Angeles, California Branch Office Leased Olympic Office 3099 Olympic Boulevard, Los Angeles, California Branch Office(1) Owned San Francisco Office 1491 Webster Street, San Francisco, California Branch Office Leased Western Office 928 South Western Avenue, Los Angeles, California Branch Office(2) Leased Garden Grove Office 9122 Garden Grove Boulevard, Garden Grove, California Branch Office Owned Vermont Office 933 South Vermont Avenue, Los Angeles, California Branch Office(3) Owned Downtown Office 401 East 11th Street, Suite 207, Los Angeles, California Branch Office Leased Van Nuys Office 114427 Sherman Way, Van Nuys, California Branch Office Leased Torrance Office 21838 Hawthorne Boulevard, Torrance, California Branch Office Leased Rowland Heights Office 18399 East Colima Road, Rowland Heights, California Branch Office Leased Cerritos Office 11900 South Street, #109, Cerritos, California Branch Office Leased Silicon Valley Office 3402 El Camino Real, Santa Clara, California Branch Office Leased

- ---------------------- (1) International Department is located at this facility (2) Consumer Loan Center is located at this facility (3) SBA Department is located at this facility ITEM 3. LEGAL PROCEEDINGS From time to time, the Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel to the Bank as to the current status of these claims or proceedings to which the Bank is a party, Management is of the opinion that the ultimate aggregate liability represented thereby if any, will not have a material adverse affect on the financial condition of the Bank. The Bank also is currently subject to a Consent Order issued by the FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(1) and which became effective on April 14, 2002. The FDIC issued the Consent Order as provided by the Consent Agreement that the Bank entered into with the FDIC. The Consent Order requires the Bank to take specific actions necessary to correct certain Bank Secrecy Act compliance deficiencies including inadequate training, internal controls and ineffective independent testing of such controls. Even before the Consent Order became effective, the Bank began taking proactive steps in 2001 to improve its BSA compliance. For example, in late 2001, the Bank implemented an enterprise-wide risk management infrastructure, which includes a comprehensive compliance program and training. This step was taken with the assistance of a leading financial services consulting firm, The Secura Group, whom the Bank retained in November 2001 to advise and assist the Bank in its compliance efforts. In addition, the Bank created a new senior executive position of Chief Risk Officer and hired the CRO in May 2002 to enhance overall Risk Management processes. Finally, to improve the overall efficiency and effectiveness of BSA monitoring, the Bank purchased a new automated BSA tracking/monitoring system which was installed in 2002 and is in the process of implementation. The Bank expects this system to be fully functional shortly, which will satisfy one of the most critical requirements of the Consent Order. The Board of Directors, Management, Officers, and employees of the Bank are fully committed to complying with all of the terms of the Consent Order. In this regard, the Bank has been working and will continue to work closely with the Bank's federal and state regulators. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS MARKET INFORMATION The Bank's common stock is traded on the Nasdaq National Market under the symbol "PUBB." Previously, all of the capital stock of the Bank was owned by KEB, which now owns approximately 62.4% of the Bank's outstanding common stock. See "Item 1 -- Business" herein. Trading in the Common Stock of the Bank has not been extensive and such trades cannot be characterized as amounting to an active trading market. Management is aware of the following securities dealers which make a market in the Bank's stock: Sandler O'Neill & Partners, L.P., New York, New York; Hoefer & Arnett, San Francisco, California; and Wedbush Morgan Securities, Inc., Los Angeles, California ("the Securities Dealers"). The following table summarizes trades of the Bank's Common Stock for the last two fiscal years setting forth the approximate high and low sales prices of trading for the periods indicated, based upon information provided by the Securities Dealers. The information in the following table does not include trading activity between dealers.

SALE PRICE OF THE BANK'S TRADING COMMON STOCK VOLUME CALENDAR ------------ ------ QUARTER ENDED HIGH LOW SHARES ------------- ---- --- ------ March 31, 2001....................... 12.25 9.75 721,700 June 30, 2001........................ 12.55 9.77 551,500 September 30, 2001................... 12.30 9.65 307,800 December 31, 2001.................... 11.15 10.05 138,500 March 31, 2002....................... 11.49 10.12 295,600 June 30, 2002........................ 17.59 10.27 1,226,300 September 30, 2002................... 18.20 11.01 758,300 December 31, 2002.................... 13.21 9.28 782,800

HOLDERS On March 10, 2003 there were approximately 643 beneficial owners of the Common Stock. DIVIDENDS Shareholders are entitled to receive dividends only when and if dividends are declared by the Bank's Board of Directors. Although the Bank is legally able to pay cash dividends, it has been the Bank's practice, since its initial public offering, to retain the Bank's earnings for the purpose of increasing its capital to support growth. Accordingly, the Bank has paid no cash dividends in the past two fiscal years. The Bank paid 12% and 10% stock dividends in 2002 and 2001, respectively. Under California law, the Bank may declare a cash dividend out of the Bank's net profits up to the lesser of the Bank's retained earnings or the Bank's net income for the last three (3) fiscal years (less any distributions made to stockholders during such period), or, with the prior written approval of the California Department of Financial Institutions, in an amount not exceeding the greatest of (i) the retained earnings of the Bank, (ii) the net income of the Bank for its last fiscal year, or (iii) the net income of the Bank for its current fiscal year. The payment of any cash dividends by the Bank will depend not only upon the Bank's earnings during a specified period, but also on the Bank meeting certain capital requirements. See "Item 1 -- Business-- Regulation and Supervision -- Capital Adequacy Requirements" herein. EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2002, with respect to options outstanding and available under the Bank's 2000 Stock Option Plan, which is the Bank's only equity compensation plan other than employee benefit plans meeting the qualification requirements of Section 401(a) of the Internal Revenue Code:

NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE NUMBER OF SECURITIES ISSUED UPON EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE FOR PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS FUTURE ISSUANCE Equity compensation plans approved by security holders 312,239 $11.15 223,764

ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below is derived from the Financial Statements of the Bank, which have been audited by PricewaterhouseCoopers LLP and KPMG LLP, independent accountants. The selected financial data should be read in conjunction with the audited Financial Statements and notes thereto which appear elsewhere in this Annual Report, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 below. The selected financial data as of December 31, 2002 and 2001 and for each of the years in the three year period ended December 31, 2002 is derived from our audited consolidated financial statements and related notes, which are included in this Annual Report. The selected financial data for prior years is derived from our audited consolidated financial statements which are not included in this Annual Report. All per share information has been adjusted for stock splits and dividends declared from time to time.

AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) SELECTED BALANCE SHEET DATA: Total assets ................................... $ 936,995 $ 789,509 $ 731,822 $ 595,179 $ 528,606 Cash and due from banks ........................ 24,266 26,074 32,326 40,524 27,891 Federal funds sold ............................. 62,500 42,000 61,600 -- 60,000 Federal Home Loan Bank stock ................... 3,538 1,504 1,414 2,000 -- Securities available-for-sale .................. 64,701 139,662 150,097 143,626 115,273 Securities held-to-maturity .................... 89,314 -- 6,007 11,761 17,830 Total loans .................................... 683,131 572,354 467,807 385,745 298,011 Allowance for loan losses ...................... 8,873 9,467 8,895 8,351 8,075 Other real estate owned ........................ -- -- 375 -- 83 Total deposits ................................. 759,995 692,752 646,404 533,120 467,667 Other borrowings ............................... -- -- -- -- 69 Total stockholders' equity ..................... 100,876 89,960 76,299 56,442 56,317 SELECTED STATEMENT OF OPERATIONS DATA: Interest income ................................ 46,378 55,276 53,169 39,751 37,582 Interest expense ............................... 13,311 22,204 20,126 13,616 13,071 Net interest income before provision for loan losses..................... 33,067 33,073 33,043 26,135 24,511 Provision for loan losses ...................... 1,100 1,300 1,300 200 3,840 Net interest income after provision for loan losses..................... 31,967 31,773 31,743 25,935 20,671 Noninterest income ............................. 12,645 9,907 9,335 8,224 8,012 Noninterest expense ............................ 25,557 23,396 22,083 20,282 20,763 Income before income taxes ..................... 19,055 18,283 18,995 13,877 7,920 Income tax expense ............................. 7,404 6,711 6,844 5,494 2,701 Net income ..................................... 11,651 11,572 12,151 8,383 5,219 Comprehensive income(1) ........................ 10,768 13,603 14,783 5,125 5,401 SHARE DATA: Net income per share - basic ................... $ 1.10 $ 1.09 $ 1.32 $ 1.02 $ 0.68 Net income per share - diluted ................. $ 1.09 $ 1.08 $ 1.32 $ 1.02 $ 0.68 Book value per share ........................... 9.50 8.48 7.20 6.87 6.86 Cash dividends ................................. -- -- 8,000 5,000 -- Weighted average common shares outstanding............................ 10,616,017 10,600,306 9,180,807 8,213,334 7,709,845 Year end shares outstanding .................... 10,621,554 10,606,417 10,597,254 8,213,334 8,213,334 KEY OPERATING RATIOS: PERFORMANCE RATIOS: Return on average equity(2) .................. 12.40% 13.99% 19.69% 15.05% 9.67% Return on average assets(3) .................. 1.34 1.41 1.84 1.50 1.04 Interest rate spread(4) ...................... 3.17 2.90 3.75 3.71 3.89 Net interest margin(5) ....................... 4.01 4.28 5.43 5.11 5.37 Efficiency ratio(6) .......................... 55.91 54.44 52.11 59.03 63.84 Net loans(7) to total deposits at year end ... 88.72 81.25 70.99 70.79 62.00 Dividend payout ratio(8) ..................... -- -- 65.84 59.64 -- Average stockholders' equity to average total assets ............................... 10.84 10.08 9.33 9.98 10.73 ASSET QUALITY RATIOS: Nonperforming loans to total loans(9) ........ 0.30 0.88 0.13 1.03 3.15 Nonperforming assets to total loans and other real estate owned(10) ............ 0.30 0.88 0.21 1.03 3.17 Net charge-offs to average total loans ....... 0.28 0.14 0.17 (0.02) 1.27 Allowance for loan losses to total loans at year end .......................... 1.30 1.65 1.90 2.16 2.71 Allowance for loan losses to nonperforming loans ........................ 437.96 187.09 1434.68 211.09 86.13 CAPITAL RATIOS: Tier 1 capital to adjusted total assets ...... 11.56 10.77 10.56 10.33 10.82 Tier 1 capital to total risk-weighted assets ..................................... 14.70 14.82 15.01 14.20 17.17 Total capital to total risk-weighted assets ..................................... 15.95 16.07 16.26 15.46 18.44

- -------------------------------- (1) Comprehensive income consists of net income and net unrealized gains (losses) on securities available-for-sale. (2) Net income divided by average stockholders' equity. (3) Net income divided by average total assets. (4) Represents the weighted average yield earned on interest-earning assets less the weighted average cost of interest-bearing liabilities. (5) Represents net interest income as a percentage of average interest-earning assets. (6) Represents noninterest expense as a percentage of the sum of net interest income before provision for loan losses and total noninterest income excluding securities gains and losses. (7) Represents total gross loans less the allowance for loan losses, deferred fees and related costs. (8) Represents dividends declared per share divided by net income per share. (9) Nonperforming loans consist of nonaccrual loans, loans past due 90 days or more and restructured loans. (10) Nonperforming assets consist of nonperforming loans and other real estate owned. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This discussion presents Management's analysis of the financial condition and results of operations of the Bank as of and for each of the years in the three-year period ended December 31, 2002 and includes the statistical disclosures required by SEC Guide 3 ("Statistical Disclosure by Bank Holding Companies"). The discussion should be read in conjunction with the Financial Statements of the Bank and the notes related thereto which appear elsewhere in this Form 10-K Annual Report (see Item 8 below). All share and per share information set forth herein has been adjusted to reflect stock splits and dividends declared. Statements contained in this report that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, including the Bank's expectations, intentions, beliefs, or strategies regarding the future. All forward looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to the Bank on the date noted, and the Bank assumes no obligation to update any such forward looking statements. It is important to note that the Bank's actual results could materially differ from those in such forward-looking statements. Factors that could cause actual results to differ materially from those in such forward looking statements are fluctuations in interest rates, inflation, government regulations, economic conditions and competitive product and pricing pressures in the geographic and business areas in which the Bank conducts its operations. CRITICAL ACCOUNTING POLICIES The Bank's financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, Management has identified its most critical accounting policy to be that related to the allowance for loan losses. The Bank'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 our historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrowers' sensitivity to interest rate movements and borrowers' sensitivity to quantifiable external factors including commodity and finished good prices as well as acts of nature (earthquakes, floods, fires, etc.) that occur in a particular period. Qualitative factors include the general economic environment in our markets, including economic conditions in Southern California and in particular, the state of certain industries. Size and complexity of individual credits in relation to lending officers' background and experience levels, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in our methodologies. As the Bank adds new products, increases the complexity of its loan portfolio, and expands its geographic coverage, it will enhance its methodologies to keep pace with the size and complexity of the loan portfolio. Management might report a materially different amount for the provision for loan losses in the statement of operations to change the allowance for loan losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with the Bank's financial statements and the accompanying notes presented elsewhere herein, as well as the portion of this Management's Discussion and Analysis section entitled "- Financial Condition - Allowance for Loan Losses." Although Management believes the level of the allowance as of December 31, 2002 is adequate to absorb losses inherent in the loan portfolio, a decline in the regional economy may result in increasing losses that cannot reasonably be predicted at this time. The Bank estimates its quarterly effective income tax rate based upon a variety of factors including, but not limited to, the expected revenues and resulting pretax income for the year, the composition and geographic mix of the pretax income, the ratio of permanent differences of, and the realizability of deferred tax assets. Any changes to the estimated rate are made prospectively in accordance with the Accounting Principles Board of Opinion No.28, "Interim Financial Reporting." Additionally, management makes estimates as to the amount of the reserves, if any, that are necessary for known and potential tax exposures. The Bank must make a determination of fair market value ("FMV") for loans held for sale (lower of cost or market), collateral underlying loans, and a variety of matters including our investment portfolio. These FMV's are determined based on consistently applied methods which are accepted within the regulatory environment the Bank operates. Investments are marked to market according to similar or identical financial instruments available in the market at the time of the mark. For all other items, market accepted techniques such as valuations, discounted cash flow and BPO's are utilized. GENERAL The Bank is a community-oriented bank focused on Korean-American niche markets in California. The Bank has grown significantly over the past five years by emphasizing personalized customer service for the Korean-speaking communities which it serves. Total assets have increased by 77.3% over this five year period. See "Item 6 - Selected Financial Data" herein. Over the past three years, the Bank has experienced significant balance sheet growth. Total assets increased to $937.0 million at December 31, 2002 from $789.5 million, and $731.8 million at December 31, 2001 and 2000, respectively, for increases of 18.7% and 7.9% in 2002 and 2001, respectively. Total loans increased to $683.1 million at December 31, 2002 from $572.4 million, and $467.8 at December 31, 2001 and 2000, respectively, for increases of 19.4% and 22.3% in 2001 and 2000, respectively. Total deposits increased to $760.0 million at December 31, 2002 from $692.8 million, and $646.4 million at December 31, 2001 and 2000, respectively, for increases of 9.7% and 7.2% at December 31, 2001 and 2000, respectively. For the year ended December 31, 2002, the Bank realized net income of $11.7 million or $1.10 per basic and $1.09 per diluted share compared to net income of $11.6 million or $1.09 per basic and $1.08 per diluted share for 2001 and $12.2 million or $1.32 per basic and diluted share for 2000. The Bank's return on average equity was 12.40%, 13.99% and 19.69% for the years ended December 31, 2002, 2001 and 2000, respectively. The Bank's return on average assets for the same years was 1.34%, 1.41% and 1.84%, respectively. NET INTEREST INCOME The Bank's earnings depend largely upon its net interest income, which is the difference between the income received from its loan portfolio and other interest-earning assets and the interest paid on deposits and other liabilities. The net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the net interest margin. The Bank's net interest income is affected by the change in the level and the mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. The Bank's net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on the Bank's loans are affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond the Bank's control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters and the actions of the FRB. Net interest income was $33.1 million, $33.1 million and $33.0 million for the years ended December 31, 2002, 2001 and 2000, respectively. The weighted average targeted Federal funds rate decrease in 2002 was the primary reason that net interest income remained relatively unchanged for the year ended December 31, 2002 although total average net loans increased $71.3 million or 13.6%. The Bank's average interest-earning assets were $823.8 million, $773.3 million and $608.5 million in 2002, 2001 and 2000, respectively, representing increases of 6.5% and 27.1% in 2002 and 2001, respectively. The yield on interest-earning assets was 5.6%, 7.1% and 8.6% for 2002, 2001 and 2000, respectively, and the proportion of average net loans to average total interest-earning assets was 72.2% in 2002 compared to 67.7% in 2001 and 71.6% in 2000. The Bank's future interest income will largely depend on its ability to originate a sufficient volume of loans in its market areas. There is no assurance that the Bank will be able to sustain satisfactory loan growth in 2003. The ratio of average investment securities to average total interest-earning assets was 18.8% in 2002, compared to 21.2% and 24.8% in 2001 and 2000, respectively. The decrease in the ratio of average investment securities to average total interest-earning assets in 2002 was primarily due to sales of available-for-sale investment securities. The proportion of low yielding Fed funds sold to total average interest-earning assets decreased to 8.6% for 2002, compared to 10.8% for 2001, but increased in 2001 from 3.1% in 2000. The weighted average yield on Fed funds sold was 1.6%, 4.0% and 6.4% in 2002, 2001 and 2000, respectively. The yield on Fed funds sold decreased by 240 basis points to 1.6% during 2002 due to a decrease in the target weighted average Fed funds rate. The weighted average target Fed funds rate was 1.67%, 3.68% and 6.26% during 2002, 2001 and 2000, respectively. Interest income on loans decreased by $5.2 million or 12.2% in 2002 compared to 2001. Average net loans increased $71.3 million to $594.6 million in 2002 compared with $523.3 million in 2001. However, the interest income on loans decreased due to the decrease in loan yield of 181 basis points to 6.15% in 2002, compared with 7.96% in 2001. Interest income on loans decreased by $230,000 or 0.54% in 2001 compared to 2000. The decrease of $230,000 is net of a decrease in interest income of $8.0 million resulting from the rate decrease of 163 basis points and an increase in interest income of $7.7 million resulting from the average volume increase of $87.6 million. Total interest expense decreased by $8.9 million or 40.1% to $13.3 million in 2002, compared with $22.2 million in 2001. The decrease of $8.9 million in total interest expense in 2002 compared with 2001 resulted from a $9.1 million decrease due to the rate change and offset by a $255,000 increase due to the volume change of average interest-bearing liabilities. An interest expense increase of $2.1 million or 10.3% in 2001, compared with $20.1 million in 2000 resulted from a $5.9 million increase due to the volume change and was offset by a $3.8 million decrease due to the rate change of average interest-bearing liabilities. The majority of this increase was attributable to the $3.2 million increase in certificates of deposit of $100,000 or more. The average balance on time certificates of deposit of $100,000 or more decreased by $24.1 million or 8.8% to $249.2 million in 2002 which represents 44.8% of total deposits compared to $273.3 million in 2001. Total average interest-bearing liabilities were $555.8 million in 2002 compared to $533.0 million in 2001, representing an increase of 4.3%. The average rate paid on interest-bearing liabilities were 2.4% and 4.2% in 2002 and 2001, respectively. The decrease of 180 bps in average rate paid on interest-bearing liabilities in 2002 was primarily the result of the lower interest rate environment and the decrease in the average balance of Jumbo CDs. The interest expense on Jumbo CD's was $6.4 million in 2002 compared to $13.8 million in 2001 as a result of $24.1 million decrease in the average balance and 249 basis points decrease in the average interest rate. NET INTEREST MARGIN The net interest margin for the years ended December 31, 2002, 2001 and 2000 was 4.01%, 4.28% and 5.43%, respectively. The decrease in the net interest margin in 2002 is due to the fact that a substantial portion of the interest earning assets reprice immediately after the rate change, interest-bearing liabilities reprice slower than interest-earning assets, and interest-bearing liabilities do not reprice to the same degree as interest earning assets, given a stated change in the interest rate. The average yield on interest earning assets decreased by 150 basis points due to the decreases in the targeted Federal funds rate during 2002. This decrease was partially offset by a decrease in the average rate paid on interest-bearing liabilities of 177 basis points mainly due to a decrease in the average deposit rate. The decrease in the average yield on interest earning assets was primarily due to the decrease in loan yields resulting from a decrease in the prime rate. The Bank's loans are generally tied to an index of prime rate, plus a spread. The net interest margin was also affected by the relative change in the mix of the Bank's interest-earning assets during 2002. The Bank's average net loans (its highest yielding assets) increased as a percentage of earning assets to 72.2% in 2002, compared 67.7% and 71.6% in 2001 and 2000, respectively. At the same time, average Fed funds (its lowest yielding earning assets) decreased to 8.6% of earning assets in 2002, compared to 10.8% in 2001, but increased compared to 3.1% of earning assets in 2000. The average U. S. government agency securities a relatively low-yielding asset decreased to 18.6% of earning assets in 2002, compared 20.4%and 22.9% of earning assets in 2001 and 2000, respectively. The following table shows the Bank's average balances of assets, liabilities and stockholders' equity; the amount of interest income or interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the years indicated: DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME

FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 ---- ---- ---- INTEREST INTEREST INTEREST AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE BALANCE EXPENSE RATE/YIELD BALANCE EXPENSE RATE/YIELD BALANCE EXPENSE RATE/YIELD ------- ------- ---------- ------- -------- ---------- ------- ------- ---------- (DOLLARS IN THOUSANDS) ASSETS: Interest-earning assets: Loans, net(1) ........................ $594,641 $ 37,107 6.15% $523,337 $ 42,258 7.96% $435,778 $ 42,487 9.59% Federal Home Loan Bank stock ......... 2,362 116 4.91 1,463 75 5.13 1,776 149 8.39 Taxable investment securities: U. S. Treasury securities ............ 1,247 74 5.93 5,486 304 5.54 11,412 624 5.47 U. S. Government agencies ............ 153,233 7,912 5.16 157,946 9,199 5.82 139,482 8,625 6.18 Tax-exempt investment securities:(2) State and political subdivisions ..... 167 6 3.84 201 8 3.83 197 8 3.90 Federal funds sold ................... 70,753 1,144 1.59 83,454 3,382 4.00 18,931 1,217 6.43 Interest-earning deposits ............ 1,409 19 1.35 1,371 50 3.65 954 59 6.18 -------- -------- -------- -------- -------- -------- Total interest-earning assets ........ 823,812 46,378 5.57 773,258 55,276 7.07 608,530 53,169 8.62 -------- -------- -------- -------- -------- -------- Noninterest-earning assets: Cash and due from banks .............. 25,402 27,391 31,659 Bank premises and equipment, net ..... 7,777 9,658 9,518 Other real estate owned, net ......... -- 35 122 Customers' acceptance liabilities .... 1,041 742 604 Accrued interest receivable .......... 3,403 3,956 3,972 Other assets ......................... 5,333 5,278 6,887 -------- -------- -------- Total noninterest-earning assets ..... 42,956 47,060 52,762 -------- -------- -------- Total assets ......................... $866,768 $820,318 $661,292 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market ......................... $118,875 2,227 1.87 $102,151 2,744 2.69 $ 83,797 2,903 3.46 Super NOW ............................ 7,517 39 0.52 6,141 59 0.96 5,682 89 1.57 Savings .............................. 42,505 289 0.68 42,833 564 1.32 41,515 1,038 2.50 Time certificates of deposit of $100,000 or more ................ 249,205 6,413 2.57 273,266 13,820 5.06 178,514 10,591 5.93 Other time ........................... 104,355 3,180 3.05 108,587 5,015 4.62 94,769 4,948 5.22 Other borrowings ..................... 33,295 1,163 3.45 38 1 2.60 8,762 557 6.25 -------- -------- -------- -------- -------- -------- Total interest-bearing ............... 555,752 13,311 2.40 533,016 22,203 4.17 413,039 20,126 4.87 -------- -------- -------- -------- -------- -------- Noninterest-bearing liabilities: Demand deposits ...................... 210,778 192,589 177,727 Other liabilities .................... 6,316 12,010 8,819 -------- -------- -------- Total noninterest-bearing ............ 217,094 204,599 186,546 Stockholders' equity ................. 93,922 82,703 61,707 -------- -------- -------- Total liabilities and Stockholders' equity ................. $866,768 $820,318 $661,292 ======== ======== ======== Net interest income .................. $ 33,067 $ 33,073 $ 33,043 ======== ======== ======== Net interest spread(3) ............... 3.17% 2.90% 3.75% ====== ====== ====== Net interest margin(4) ............... 4.01% 4.28% 5.43% ====== ====== ====== Ratio of average interest-bearing Assets to average interest-bearing ... 148.23% 145.07% 147.33% ====== ====== ======

- -------------------------------- (1) Loans are net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $615,000, $504,000 and $405,000 for the years ended December 31, 2002, 2001 and 2000, respectively. (2) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (4) Represents net interest income as a percentage of average interest-earning assets. The following table sets forth, for the years 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 changes in average daily balances (volume) or changes in interest rates (rate). The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each: RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2002 VS. 2001 2001 VS. 2000 ------------- ------------- INCREASES (DECREASES) INCREASES (DECREASES) DUE TO CHANGE IN DUE TO CHANGE IN ---------------- ---------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ---- ----- ------ ---- ----- (DOLLARS IN THOUSANDS) EARNING ASSETS: INTEREST INCOME: $5,267 ($10,418) ($5,151) $ 7,746 ($7,975) ($ 229) Loans, net(1).................. Federal Home Loan Bank stock... 44 (3) 41 (23) (51) (74) Taxable investment securities: U. S. Treasury securities.... (250) 20 (230) (328) 8 (320) U. S. Government agencies.... (268) (1,020) (1,288) 1,096 (522) 574 Tax-exempt securities:(2) State and political subdivisions............... (1) - (1) - - - Federal funds sold............. (452) (1,786) (2,238) 2,765 (600) 2,165 Interest-earning deposits...... 1 (32) (31) 20 (29) (9) Total net change ------ -------- ------- ------- ------- ------ in interest income..... $4,341 ($13,239) ($8,898) $11,276 ($9,169) $2,107 ------ -------- ------- ------- ------- ------ DEPOSITS AND BORROWED FUNDS: INTEREST EXPENSE: Money market deposits.......... 402 (919) (517) 565 (724) (159) Super NOW...................... 11 (31) (20) 7 (36) (29) Savings deposits............... (4) (271) (275) 32 (506) (474) Time certificates of deposit in denominations of $100,000 or more..................... (1,126) (6,281) (7,407) 4,972 (1,743) 3,229 Other time deposits............ (189) (1,646) (1,835) 675 (608) 67 Other borrowings............... 1,161 1 1,162 (354) (203) (557) ------ -------- ------- ------- ------- ------ Total net change in interest expense.... 255 (9,147) (8,892) 5,898 (3,821) 2,077 ------ -------- ------- ------- ------- ------ Change in net interest income..... $4,086 ($ 4,092) ($ 6) $ 5,378 ($5,348) $ 30 ====== ======== ======= ======= ======= ======

- ------------------ (1) Loan fees net of direct cost have been included in the calculation of interest income. Loan fees were $615,000, $504,000 and $405,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Loans are net of the allowance for loan losses, deferred fees and related direct costs. (2) Yields on tax-exempt income have not been computed on a tax equivalent basis, because the percentage of tax-exempt securities is minimal. PROVISION FOR LOAN LOSSES Credit risk is inherent in making loans. The Bank sets aside an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as the provision for loan losses. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in Management's judgment is adequate to absorb losses inherent in the Bank's loan portfolio. The provision for loan losses was $1.1 million, $1.3 million and $1.3 million for the years ended December 31, 2002, 2001 and 2000, respectively. The Bank had net charge-offs of $1.7 million (including $111,000 in recoveries) in 2002, $727,000 (including $581,000 in recoveries) in 2001, $756,000 in 2000 (including $432,000 in recoveries). The allowance for loan losses decreased to $8.9 million at December 31, 2002, from $9.5 million at December 31, 2001. The allowance for loan losses was $8.9 million at December 31, 2000. The continual decline of allowance for loan losses as a percentage of total gross loans is a reflection of the Bank's loan portfolio growth in the commercial real estate relative to minimal charge-off history on commercial real estate loan portfolio. Based on the current migration methodology used to determine the adequacy of the allowance for loan losses, and the historically low charge-off ratio relative to its portfolio size, the reserve requirement ratio is substantially lower than for other segments of the other loan portfolio, such as commercial and industrial loan portfolio, which has a higher historical charge-off ratio. The other reserve was $100,000, $679,000 and $1.1 million for the years ended December 31, 2002, 2001, and 2000. The allowance for loan losses at December 31, 2002, as a percentage of total loans was 1.3%, compared to 1.7% and 1.9% at December 31, 2001 and 2000, respectively. The Bank formally assesses the allowance for loan losses on a quarterly basis. The allowance for loan losses begins with Management reviewing each individual classified, criticized loan in detail, evaluating, among other things, the adequacy of collateral, payment record, current loan status and borrower financial capacity. A loan loss allowance is assigned to each classified and criticized loan. Loans categorized as Substandard, Doubtful and Loss as well as Special Mention from this quarterly review are based upon the specifics of the loans circumstances, including updated collateral value, borrowers or guarantors financial capacity, payment record and recent conversations with the borrower. Additionally, each quarter the Bank updates its twelve-quarter loss migration analysis for commercial loan pool, six-quarter loss migration analysis for homogeneous loan pool and four-quarter loss migration analysis for credit card loan pool to drive rolling respective loan loss experience percentages. These loan pools are assigned an appropriate reserve factor based upon the Bank's historical charge off experience or a minimum floor, whichever is greater, and then accounts for qualitative adjustments that takes consideration of current conditions. The allowance is maintained at a level the Bank considers adequate to cover the inherent risk of loss associated with its loan portfolio under prevailing and anticipated economic conditions. For the foreseeable future, the Bank anticipates that the allowance for loan losses will remain approximately at current levels. No assurance can be given that the amounts of the required provisions will in fact correspond to such projections or that the Bank may not sustain unexpected credit deterioration or losses which would increase the required amount of the provisions. Management believes that the allowance for loan and lease losses at December 31, 2002 is adequate to absorb the known and inherent risks in the loan portfolio. However, no assurance can be given that changes in the current economic environment in the Bank's principal market area or other circumstances will not result in increased losses in the Bank's loan portfolio in the future. The procedures for monitoring the adequacy of the allowance as well as detail information concerning the allowance itself are included below under "Allowance for Loan Losses." NONINTEREST INCOME The Bank generates noninterest income from service fees on deposit accounts and from other transactional and operating income in connection with remittances, letters of credit, merchant service and other activities. The following table sets forth the various components of the Bank's noninterest income for the years indicated:

NONINTEREST INCOME FOR THE YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (DOLLARS IN THOUSANDS) Service charges on deposit accounts .............. $ 6,484 $ 6,573 $ 5,652 Remittance fees .................................. 912 918 996 Letter of credit related fees .................... 807 768 909 Net other real estate owned income ............... - 114 357 Gain on sale of loans ............................ 705 - - Gain on sale of securities ....................... 825 - - Gain on sale of premise .......................... 1,194 - - Other operating income ........................... 1,718 1,534 1,421 -------- -------- -------- Total ...................................... $ 12,645 $ 9,907 $ 9,335 ======== ======== ======== As a percentage of average earning assets... 1.53% 1.28% 1.17%

The Bank earns the majority of its noninterest income from service charges on deposit accounts, which amounted to $6.5 million, $6.5 million and $5.7 million in 2002, 2001 and 2000, respectively, or 51.3%, 66.3%, and 60.5% of total noninterest income in 2002, 2001 and 2000, respectively. The slight decrease in service charges on deposit accounts in 2002 mainly resulted from a decrease in fees collected due to the non-sufficient funds. The increase in 2001 in service charges was a result of fee increases implemented on various bank services in December 2000. Other operating income amounted to $1.7 million, $1.5 million and $1.4 million in 2002, 2001, and 2000, respectively. The increase in gain on sale of premises and equipment of $1.2 million was due to a sale of San Francisco branch premise. The Bank realized a $825,000 in gain on sale of investment securities and a $705,000 in gain on sale of loans including a $586,000 gain realized from the SBA loans in 2002. The Bank is planning to continue to originate and sell SBA loans in 2003. Remittance fees amounted to $912,000, $918,000 and $996,000 or 7.2%, 9.3% and 10.7% of total non-interest income in 2002, 2001, and 2000, respectively. Fees from letters of credit totaled $807,000, $768,000 and $909,000 or 6.4%, 7.8% and 9.7% of total non-interest income in 2002, 2001 and 2000, respectively. Other operating income was composed of various fee income from routine banking operations, such as credit card processing fees, merchant discount fees, safety deposit box rental and check printing charges, none of which were individually significant. NONINTEREST EXPENSE The following table sets forth the breakdown of non-interest expense for the years indicated:

NON-INTEREST EXPENSE FOR THE YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (DOLLARS IN THOUSANDS) Salaries and employee benefits ................ $ 12,348 $ 11,946 $ 11,573 Security guards ............................... 938 868 783 Net occupancy expense ......................... 2,873 2,903 2,894 Equipment expense ............................. 1,384 1,247 1,078 Data processing expense ....................... 1,942 1,713 1,267 Office supplies ............................... 483 553 561 Legal and professional expense ................ 1,206 757 480 Advertising and public relations .............. 845 568 578 Communication related expense ................. 1,035 948 926 Other operating expense ....................... 2,503 1,894 1,943 -------- -------- -------- Total .......................... $ 25,557 $ 23,397 $ 22,083 ======== ======== ========

Total noninterest expense was $25.6 million, $23.4 million and $22.1 million for the years ended December 31, 2002, 2001 and 2000, respectively. The increase in 2002 was mainly attributable to an increase in other operating expenses of $696,000, legal and professional expenses of $449,000 and salaries and employee benefits of $402,000. The increase in 2001 was primarily due to an increase in salaries and employee benefits of $373,000, an increase in data processing expenses of $446,000, and an increase in legal and professional expenses of $277,000. Salaries and employee benefit costs totaled $12.3 million, $11.9 million and $11.6 million or 48.3%, 51.1% and 52.4% of total noninterest expenses in 2002, 2001 and 2000, respectively. The number of full-time equivalent employees was 261, 252 and 248 as of December 31, 2002, 2001, and 2000, respectively. The salaries and employee benefit costs increased by $267,000 or 2.9% in 2002 compared with 2001, and $786,000 or 9.1% in 2001 compared with 2000. Occupancy expense totaled $2.9 million, $2.9 million and $2.9 million or 11.2%, 12.4% and 13.1% of total noninterest expenses in 2002, 2001 and 2000, respectively. In the middle of 2002, the Bank sold its San Francisco premise and relocated its San Francisco office and in 2000, the Bank relocated the Gardena office to the city of Torrance and reduced the size of both the Rowland Heights and Van Nuys branches in furtherance of its right-sizing strategy. Data processing expenses totaled $1.9 million, $1.7 million and $1.3 million or 7.6%, 7.3% and 5.7% of noninterest expenses in 2002, 2001 and 2000, respectively. Legal and professional expenses totaled $1.2 million, $757,000 and $480,000 or 4.7%, 3.2% and 2.2% of the noninterest expenses in 2002, 2001 and 2000 respectively. The increase of $449,000 or 59.3% in 2002 compared with 2001 was primarily attributable to an increase in consulting and legal expenses for retaining an outside consultant for reviewing a bank-wide risk program. The increase of $277,000 or 57.7% in 2001 compared with 2000 was primarily attributable to an increase in legal expenses for retaining outside consultants for reviewing the Bank's operations and in connection with loan collection activities. Other operating expense was comprised of FDIC and state assessment on deposits expenses, SBA referral fees, sundry losses and other various expenses. Other operating expenses totaled $2.5 million, $1.9 million and $1.9 million or 9.8%, 8.1% and 8.8% of total noninterest expenses in 2002, 2001, and 2000, respectively. An increase of $609,000 or 32.2% in 2002 was mainly attributable to the increases in SBA loan referral fees and sundry loss of $144,000 and $256,000, respectively. A slight decrease of $49,000 or 2.5% in 2001 was mainly attributable to the net of increases in other loan related expenses, employee related expenses and other expenses of $118,000, $86,000, and $41,000, respectively and decrease in sundry loss of $303,000. The efficiency ratio, defined as the ratio of noninterest expense to the sum of net interest income before provision for loan losses and noninterest income, was 55.9%, 54.4% and 52.1% in 2002, 2001 and 2000, respectively. The efficiency ratio went slightly up in 2002 due to increased noninterest expense compared with 2001. Increased noninterest expense was primarily attributable to an increase in expenses in monitoring, training and auditing for compliance with BSA in spite of the Bank's consistent efforts to control expenses and increase revenues through improved marketing strategies. PROVISION FOR INCOME TAXES The Bank had income taxes of $7.4 million, $6.7 million and $6.8 million in 2002, 2001 and 2000, respectively, resulting in effective tax rates of 38.9%, 36.7% and 36.0% for 2002, 2001 and 2000, respectively. The effective tax rate fluctuations are strongly influenced by California state franchise taxes net of Federal tax benefits under the Water's Edge Unitary method. Income tax expenses included $2.0 million, $611,000 and $295,500 for California franchise taxes in 2002, 2001 and 2000, respectively. The significant increase in California franchise taxes in 2002 and 2001 was mainly due to a fluctuation in taxable income of the Bank's affiliates in the United States under the Water's Edge Unitary method. The Bank accrues state franchise taxes based on the tax sharing agreement between the Bank and KEB. This agreement requires that each party pay its share of California franchise tax liability on the taxable income allocated from estimated combined net taxable income of KEB's branches and affiliates in the United States, including the Bank, using the apportionment factor of California property, payroll and revenues over combined property, payroll and revenue of KEB's branches and its affiliates in the United States under the Water's Edge Unitary method. See " Taxation" below. Deferred tax assets were $4.7 million, $3.3 million and $3.9 million as of December 31, 2002, 2001 and 2000, respectively. The major portion of the Bank's temporary differences involve recognizing substantially more loan loss provisions in its financial statements than it has been allowed to deduct for taxes. For tax purposes, the Bank must use the specific charge-off method for bad debt deduction, which claims deductions only to the extent that loans become wholly or partially worthless. MARKET RISK/INTEREST RATE RISK MANAGEMENT Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Bank's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Bank's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. To that end, Management actively monitors and manages its interest rate risk exposure. Asset and liability management is concerned with the timing and magnitude of the repricing of assets and liabilities. It is the objective of the Bank to attempt to control risks associated with interest rate movements. In general, Management's strategy is to match asset and liability balances within maturity categories to limit the Bank's exposure to earnings variations and variations in the value of assets and liabilities as interest rates change over time. The Bank's asset and liability management strategy is formulated and monitored by the Bank's Asset/Liability Management Committee, which is composed of executive and manager level officers from various areas of the Bank including lending, investment and deposit gathering, in accordance with policies approved by the Board of Directors. The Asset/Liability Management Committee meets regularly to review, among other things, the sensitivity of the Bank's assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses and maturities of investments and borrowings. The Asset/Liability Management Committee also approves and establishes pricing and funding decisions with respect to overall asset and liability composition, and reports regularly to the Board of Directors. One of the primary goals of the Bank's Asset/Liability Management Committee is to manage the financial components of the Bank so as to optimize net income under varying interest rate environments. The focus of this process is the development, analysis, implementation and monitoring of earnings enhancement strategies that provide stable earnings and capital levels during periods of changing interest rates. Interest rate risk occurs when assets and liabilities re-price at different times as interest rates change. Generally speaking, the rates of interest that the Bank earns on its assets, and pays on its liabilities, are established contractually for specified periods of time. Unfortunately, market interest rates change over time and if a financial institution cannot quickly adapt to interest rate changes, then as a result it may be exposed to lower profit margins or even losses. For instance, if the Bank were to fund long-term assets with short-term deposits, and interest rates were to rise over the term of the assets, the short-term deposits would rise in cost, decreasing or perhaps eliminating the prior amount of 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 FRB reduced the targeted Fed funds rate by 50 basis points in 2002 and 475 basis points in 2001 in response to a perceived economic slowdown with many economists speculating further reductions. Such reductions, if sustained, will result in a decrease in net interest income. In the management of interest rate risk, the Bank utilizes 1) monthly gap analysis, and 2) quarterly simulation modeling to determine the sensitivity of net interest income and economic value sensitivity of the balance sheet. These techniques are complementary and are used to provide a more accurate measurement of interest rate risk. Gap analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice in a particular time interval. A liability sensitivity results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. At December 31, 2002, the Bank maintained a one-year gap position of $86.5 million or 9.2% of total assets because the Bank's assets tend to reprice more frequently than its liabilities over a twelve months period. The Bank will realize lower net interest income in a falling rate environment. The following table sets forth the interest rate sensitivity of the Bank's interest-earning assets and interest-bearing liabilities as of December 31, 2002 using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its contractual terms. Actual payment patterns may differ from contractual payment patterns.

INTEREST RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 2002 AMOUNTS SUBJECT TO REPRICING WITHIN ---------------------------------------------- 0-3 MONTHS 3-12 MONTHS 1-5 YEARS AFTER 5 YEARS TOTAL ------------ ------------ ------------ ------------- ------------ (DOLLARS IN THOUSANDS) Interest-earning assets: Total loans(1) ................ $ 513,999 $ 16,128 $ 56,942 $ 95,397 $ 682,466 Federal Home Loan Bank stock .. 3,538 - - - 3,538 Investment securities(2) ...... 12,793 11,809 125,875 3,538 154,015 Federal funds sold ............ 62,500 - - - 62,500 Interest-earning deposits ..... 211 - - - 211 ------------ ------------ ------------ ------------- ------------ Total .................. 593,041 27,937 182,817 98,935 902,730 ============ ============ ============ ============= ============ Interest-bearing liabilities: Money market .................. 126,272 - - - 126,272 NOW ........................... 7,602 - - - 7,602 Savings deposits .............. 44,215 - - - 44,215 Time deposits of $100,000 or more ................ 154,243 102,597 1,812 - 258,652 Other time deposits ........... 43,161 46,372 10,344 - 99,877 Other borrowed funds .......... - 10,000 60,000 - 70,000 ------------ ------------ ------------ ------------- ------------ Total .................. $ 375,493 $ 158,969 $ 72,156 $ - $ 606,618 ============ ============ ============ ============= ============ Interest rate sensitivity gap .......... $ 217,548 ($ 131,032) $ 110,661 $ 98,935 $ 296,112 Cumulative interest rate sensitivity gap ............... $ 217,548 $ 86,516 $ 197,177 $ 296,112 Cumulative interest rate sensitivity gap ratio as a percentage of total assets .... 23.22% 9.23% 21.04% 31.60%

- -------------- (1)Excludes non-accrual loans and including deferred loan fees. (2)Based on maturity dates and repricing frequencies. Although interest rate sensitivity gap is a useful measurement and contributes to effective asset and liability management, it is difficult to predict the effect of changing interest rates based solely on that measure. As a result, the Asset/Liability Management Committee also regularly uses simulation modeling as a tool to measure the sensitivity of earnings and net portfolio value ("NPV") to interest rate changes. Net portfolio value is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. The simulation model captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans and deposits, principal amortization, call options on securities, balance sheet growth assumptions and changes in rate relationships as various rate indices react differently to market rates. The simulation measures the volatility of net interest income and net portfolio value under immediate rising or falling market interest rate scenarios in 100 basis point increments. The following table sets forth as of December 31, 2002 the Bank's estimated net interest income over a twelve months period and NPV based on the indicated changes in market interest rates.

% Change Change (in Net Interest % Change in (in Basis Points) Income) NPV - ----------------- ---------------- ----------- 200 11.56% 8.77% 100 5.38 4.32 0 -100 -8.62 -3.49 -125 -10.73% -4.37%

As indicated above, the net interest income increases (decreases) as market interest rates rise (fall). This is due to the fact that the Bank maintained a positive gap and also a substantial portion of the interest earning assets reprice immediately after the rate change, interest-bearing liabilities reprice slower than interest-earning assets, and interest-bearing liabilities do not reprice to the same degree as interest earning assets, given a stated change in the interest rate. The NPV increases (declines) as the interest income increases (decreases) since the change in the discount rate has a greater impact on the change in the NPV than does the change in the cash flows. Management believes that the assumptions used by it to evaluate the vulnerability of the Bank's operations to changes in interest rates approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Bank's assets and liabilities and the estimated effects of changes in interest rates on the Bank's net interest income and NPV could vary substantially if different assumptions were used or actual experience differs from the historical experience on which they are based. The Bank's historical strategies in protecting both net interest income and economic value of equity investments from significant movements in interest rates have involved restructuring its investment portfolio and using FHLB advances. Bank policies also permit the purchase of rate caps and floors, and engaging in interest rate swaps, although the Bank has not yet engaged in either of these activities. At December 31, 2002, the Bank had no derivative instruments outstanding. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY. Liquidity is the Bank's ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Bank's principal sources of liquidity have been growth in deposits and proceeds from the maturity of securities and prepayments from loans. To supplement its primary sources of liquidity, the Bank maintains $49.0 million of borrowing capacity under a collateralized line of credit with the FHLB of San Francisco. As of December 31, 2002, the Bank's available liquidity totaled $186.4 million, which was approximately 24.5% of total deposits and 71.9% of total volatile liabilities. It is the Bank's policy to maintain a minimum fund availability to total deposit and borrowing ratio of 20% and a minimum fund availability to total volatile liability ratio of 50%. The Bank considers any excessive cash holdings or balances in due from banks, overnight Fed funds sold, uncollateralized available-for-sale securities, readily marketable loans and readily available FHLB advances as fund availability. The Bank follows the regulatory definition of volatile liabilities, which is Jumbo CD's. The ratios of the average balance of Jumbo CD's to average total deposits for the years ended December 31, 2002, 2001 and 2000 were 47.7%, 51.3% and 43.2%, respectively. The following is a schedule by years of future net minimum rental commitments, primarily representing noncancelable operating leases and a noncancelable sublease and borrowings from Federal Home Loan Bank as of December 31, 2002.

NET MINIMUM OTHER RENTALS BORROWINGS ----------- ------------ Year ending December 31: 2003 $ 1,426,777 $ 10,000,000 2004 1,407,250 25,000,000 2005 1,415,920 25,000,000 2006 1,207,483 10,000,000 2007 1,186,515 -- Later years 1,066,956 -- ----------- ------------ $ 7,710,901 $ 70,000,000 =========== ============

As part of its service to its small to medium sized business customers, the Bank issues formal commitments and lines of credit. These commitments can be either secured or unsecured. They may be in the form of revolving lines of credit for seasonal working capital needs. These commitments may also take the form of standby letters of credit and commercial letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The following table shows the commercial commitments of the Bank as of December 31, 2002.

COMMITMENTS EXPIRING WITHIN AT DECEMBER 31, 2002 (IN THOUSANDS) AFTER ONE BUT WITHIN ONE WITHIN AFTER FIVE YEAR FIVE YEARS YEARS TOTAL ------------ ------------- ------------ ------------ (DOLLARS IN THOUSANDS) Commercial commitments: Loans .................................. $ 80,888 $ 11,540 $ 27 $ 92,455 Standby letters of credit .............. 19,556 19 - 19,575 Commercial Letters of credit ........... 5,404 - - 5,404 ------------ ------------- ------------ ------------ Total commercial commitments $ 105,848 $ 11,559 $ 27 $ 117,434 ============ ============= ============ ============

The following table shows the commitments to extend credit whose contract amounts represent the amount of credit risk include the following at December 31, 2002 and 2001:

2002 2001 ------------------------------- ------------------------------- OUTSTANDING GUARANTEED OUTSTANDING GUARANTEED AMOUNT AMOUNT AMOUNT AMOUNT -------------- -------------- -------------- -------------- Commitments to extend credit: Commercial loans $ 92,454,510 $ -- $ 33,810,704 $ -- Home equity line of credit 4,325,374 -- 4,409,023 -- Credit card loans and others 6,623,348 -- 6,851,421 -- Standby letters of credit 19,575,312 19,575,312 12,096,276 12,096,276 Commercial letters of credit 5,404,357 -- 5,547,866 --

CAPITAL RESOURCES. Stockholders' equity at December 31, 2002 was $100.9 million, compared to $90.0 million and $76.3 million at December 31, 2001 and 2000, respectively. The increase of $10.9 million or 12.1% in 2002 compared with the same period of last year mainly resulted from retained earnings and was partially offset by the unrealized loss on securities classified as available-for-sale. The increase of $13.7 million or 17.9% in 2001 compared to December 31, 2000 resulted from retained earnings and unrealized gain on securities classified as available-for-sale. The Bank is committed to maintaining capital at a level sufficient to assure shareholders, customers and regulators that the Bank is financially sound. The Bank 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. Based on the guidelines, the Bank's Tier I capital risk based capital ratio, total risk based capital ratio and leverage ratio meet or exceed 6%, 10%, and 5%, respectively. The Bank's Tier 1 and total risk based capital ratios at December 31, 2002 were 14.70% and 15.95%, respectively, compared with 14.82% and 16.07%, respectively, at December 31, 2001 and 15.01% and 16.26%, respectively at December 31, 2000. The Bank's leverage ratio was 11.56%, 10.77% and 10.56% at December 31, 2002, 2001 and 2000, respectively. TAXATION FEDERAL TAXATION: The Bank is subject to those rules of federal income taxation generally applicable to corporations under the Internal Revenue Code. The Bank files its federal income taxes independently from KEB. BAD DEBT DEDUCTION: The Bank must use the specific charge-off method for bad debt deduction, which claims deductions only to the extent that loans become wholly or partially worthless. STATE TAXATION: The Bank files a separate California franchise tax return and pays California state franchise taxes on the taxable income allocated from the combined taxable income of KEB's branches and affiliates in the United States, including the Bank, using the apportionment factors of California property, payroll and revenues over combined property, payroll and revenue of KEB's branches and its affiliates in the United States under the Water's Edge Unitary method. Within the United States KEB currently has branches in Seattle, Chicago, New York City and Los Angeles. For purposes of the Water's Edge Unitary method the taxable income from all these entities is combined. The percentage of this combined income taxable to the Bank in California is the percentage derived by taking the Bank's apportionment factors over the total apportionment factors. To the extent that the Bank's taxable income, as a percentage of the combined taxable income, is more or less than the apportionment percentage, the actual California franchise tax liability and expense of the Bank would differ from the amount determined if the Bank was not part of the combined group. For instance, even if the Bank had no taxable income, a tax liability and expense could exist to the extent that the other entities did have taxable income. It is possible that the Bank could have no taxable income in a particular year, but that based on the taxable income of the other entities in the group, the Bank's state tax liability could be significant. IMPACT OF INFLATION; SEASONALITY The impact of inflation on a financial institution differs significantly from such impact on other companies. Banks, as financial intermediaries, have assets and liabilities that tend to move in concert with inflation both as to interest rates and value. This is especially true for the Bank, with a high percentage of interest rate-sensitive assets and liabilities. A bank can reduce the impact of inflation if it can manage its interest rate sensitivity gap. The Bank attempts to structure its mix of financial instruments and manage its interest rate sensitivity gap in order to minimize the potential adverse effects of inflation or other market forces on its net interest income and therefore its earnings and capital. See " Market Risk/ Interest Rate Risk Management" above. The effect of inflation on premises and equipment as well as noninterest expense has generally not been significant. The Bank's business is generally not seasonal. FINANCIAL CONDITION SUMMARY The Bank's average total assets were $866.8 million, $820.3 million and $661.3 million in 2002, 2001, and 2000, respectively. The increase of $46.5 million or 5.7% in 2002 compared to 2001 was primarily due to the increase in average loan portfolio of $71.3 million offset by the decreases in Federal funds sold and available for sale securities by $12.7 million and $5.1 million, respectively. The increase of $159.0 million or 24.0% in 2001 was primarily due to the increases in average loan portfolio, Federal funds sold and available for sale securities by $87.6 million, $64.5 million and $18.1 million, respectively. Total nonperforming assets at December 31, 2002 were $2.0 million, compared to $5.1 million and $995,000 at December 31, 2001 and 2000, respectively. Total nonperforming assets were 0.22% of total assets at December 31, 2002 compared to 0.64% and 0.14% of total assets at December 31, 2001 and 2000, respectively. See " Nonperforming Assets." During this same three year period, the Bank's average deposits showed a continual growth pattern. Average total deposits were $733.2 million, $725.6 million and $582.0 million in 2002, 2001 and 2000, respectively, representing an increase of $7.7 million or 1.06% in 2002 and $143.6 million or 24.7% in 2001. At December 31, 2002 total assets were $937.0 million, compared to $789.5 million at December 31, 2001. Gross loans were $683.1 million at December 31, 2002 compared to $572.4 million at December 31, 2001. Total deposits were $760.0 million at December 31, 2002 compared to $692.8 million at December 31, 2001. LOAN PORTFOLIO Total loans outstanding as of December 31, 2002 were $683.1 million, compared to $572.4 million and $467.8 million at December 31, 2001 and 2000, respectively. Total loans comprised 72.9% of total assets at December 31, 2002, compared with 72.5% and 63.9% of total assets at December 31, 2001 and 2000, respectively. Total gross loans increased by $110.8 million or 19.4% in 2002. The net increase in total loans is attributable to a $84.5 million increase in commercial real estate secured loans, a $6.7 million increase in installment loans, a $14.8 million increase in commercial and industrial loans, a $21.2 million increase in other loans, which consists predominantly of SBA loans, and offset by a $19.1 million decrease in residential real estate loans. The following table set forth the composition of the Bank's loan portfolio as of the dates indicated:

LOAN PORTFOLIO COMPOSITION AT DECEMBER 31, --------------- 2002 2001 2000 ---- ---- ---- PERCENT PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Commercial and industrial(1) ...... $ 125,363 18.35% $ 110,514 19.31% $ 90,827 19.42% Term Federal funds sold ........... - - - - - - Installment loans, net ............ 21,225 3.11 14,521 2.54 17,398 3.72 Real estate loans: Commercial .................. 395,807 57.94 311,326 54.39 250,477 53.54 Home mortgage ............... 37,459 5.48 56,558 9.88 56,623 12.10 Home equity ....................... 5,993 0.88 4,697 0.82 4,724 1.01 Other(2) .......................... 78,179 11.44 57,349 10.02 37,124 7.94 Trade Finance ..................... 12,488 1.83 7,990 1.40 9,061 1.94 Bills Bought(3) ................... 6,617 0.97 9,399 1.64 1,573 0.33 ---------- ---------- ---------- ---------- ---------- ---------- Total loans(4) .................... $ 683,131 100.00% $ 572,354 100.00% $ 467,807 100.00% ========== ========== ========== ========== ========== ==========

LOAN PORTFOLIO COMPOSITION AT DECEMBER 31, --------------- 1999 1998 ---- ---- PERCENT PERCENT AMOUNT OF TOTAL AMOUNT OF TOTAL ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Commercial and industrial(1) ...... $ 86,483 22.42% $ 68,491 22.98% Term Federal funds sold ........... - - 20,000 6.71 Installment loans, net ............ 8,984 2.33 13,357 4.48 Real estate loans: Commercial .................. 178,740 46.34 129,824 43.57 Home mortgage ............... 51,579 13.37 33,855 11.36 Home equity ....................... 4,122 1.07 4,658 1.56 Other(2) .......................... 24,187 6.27 19,758 6.63 Trade Finance ..................... 9,521 2.47 8,068 2.71 Bills Bought(3) ................... 22,129 5.73 - - ---------- ---------- ---------- ---------- Total loans(4) .................... $ 385,745 100.00% $ 298,011 100.00% ========== ========== ========== ==========

- --------------- (1) Includes Korean L/C Loans and Korean Affiliate Loans. See " Loans Involving Country Risk." (2) Consists predominantly of SBA loans. (3) See " Loans Involving Country Risk." (4) Net of unearned income and participation loans sold. LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE The following table shows the maturity distribution and repricing intervals of the Bank's outstanding loans as of December 31, 2002. In addition, the table shows the distribution of such loans between those with variable or floating interest rates and those with fixed or predetermined interest rates. The table includes deferred loan fees of $1.3 million at December 31, 2002.

LOAN MATURITIES AND REPRICING SCHEDULE AFTER ONE BUT WITHIN ONE WITHIN AFTER FIVE YEAR FIVE YEARS YEARS TOTAL -------------- -------------- -------------- -------------- (DOLLARS IN THOUSANDS) Commercial loans(1) ........................................ $ 454,664 $ 39,201 $ 66,073 $ 559,938 Installment loans .......................................... 5,595 15,629 - 21,224 Home equity ................................................ 465 - 5,553 6,018 Other(2) ................................................... 75,462 2,653 64 78,179 Trade Finance .............................................. 12,488 - - 12,488 Bills Bought(3) ............................................ 6,617 - - 6,617 -------------- -------------- -------------- -------------- Total ...................................... $ 555,291 $ 57,483 $ 71,690 $ 684,464 ============== ============== ============== ============== Loans with variable (floating) interest rates .............. $ 544,805 $ 27 $ 5,553 $ 550,385 Loans with predetermined (fixed) interest rates ............ $ 10,486 $ 57,456 $ 66,137 $ 134,079

- ------------- (1) Includes commercial and industrial loans and real estate loans (2) Consists predominantly of SBA loans. (3) See" Loans Involving Country Risk" below. COMMERCIAL LENDING-GENERAL. The Bank offers an array of commercial loan products catering primarily to the needs of the Korean-American community. Commercial loans offered by the Bank consist of three primary categories: commercial real estate loans, commercial business loans, and international trade finance. Commercial loans also include Korean L/C Loans and Korean Affiliate Loans, which amounted to $17.4 million and $10.2 million, respectively, at December 31, 2002. See "Loans Involving Country Risk" below. COMMERCIAL REAL ESTATE LOANS. The Bank offers mini-perm commercial real estate loans secured by commercial, special use, or industrial buildings where the loan's repayment source generally comes from tenants, or a business, that fully or partially occupy the building. The majority of properties that secures commercial real estate loans are located in Southern California. After the recession in the California real estate market in the early 1990's the Bank strengthened its loan underwriting policies for these loans by adopting various policies, such as centralized appraisal review by a loan review officer, and the requirement of an annual physical inspection and valuation of the property. The Bank has established general underwriting guidelines for commercial property real estate loans requiring a maximum loan-to-value ratio ("LTV") of 65% or the lesser of the appraised value or the purchase price. The Bank's underwriting policies also require that the properties securing commercial real estate loans have debt service coverage ratios of at least 1.25:1 for investor-owned property. Additionally, for owner-occupied properties, the Bank expects additional debt service capacity from the business itself. As additional security, the Bank generally requires personal guaranties when the commercial real estate loans are extended to corporations, limited partnerships, and other legal entities. Commercial real estate loans are in all cases secured by first deeds of trust, are generally for a term extending no more than seven years and are amortized up to 20 to 25 years. The majority of the commercial real estate loans currently being originated contain interest rates tied to the Wall Street Journal prime rate that adjusts with changes in the federal discount rate. The Bank also extends commercial real estate loans with fixed rates due to the high demand for fixed rate loans. As of December 31, 2002, commercial real estate loans totaled $395.8 million, compared with $311.3 million at December 2001 and $250.5 million at December 31, 2000. Total commercial real estate loans comprised 57.9% of total gross loans, compared with 54.4% at December 31, 2001 and 53.5% at December 31, 2000. The increase of $84.5 million or 27.1% during 2002, $60.8 million or 24.3% during 2001 and of $71.7 million or 40.1% during 2000 was primarily due to the Bank's emphasis on increasing its local loan origination activities in recognition of the continuing strength of the real estate market in Southern California. During these periods, the Bank sought to increase its loans to local customers through the active marketing of its loan products, more competitive pricing policies based on loan quality and faster processing of loan applications. COMMERCIAL BUSINESS LOANS. The Bank originates commercial business loans to facilitate permanent working capital and to finance business acquisitions, fixed asset purchases, accounts receivable and inventory financing. These term loans to businesses generally have terms of up to five years, interest rates tied to the Bank's prime rate and may be secured in whole or part by owner-occupied real estate. As of December 31, 2002, the Bank had a total of $125.4 million in commercial business loans representing 18.4% of total gross loans, including $80.1 million in term loans and $42.3 million in commercial lines of credit. This represents an increase of $14.8 million or 13.4% in 2002 compared to 2001 and $19.7 million or 21.7% in 2001 compared to 2000. These increases are attributable to increased loan origination for business loans to finance business acquisitions and to facilitate permanent working capital. Underwriting guidelines for commercial business loans include evaluation of the borrower's quality of operations and management, specific use of loan proceeds and proper identification of the repayment source. The loan proceeds are advanced against security interests in blanket asset coverage, and equipment loans are advanced against underlying specific equipment. When appropriate, the Bank may require additional collateral with a lien on real estate. Guaranties are generally required of borrowers other than individuals. In addition to term loans, the Bank offers commercial revolving lines of credit to finance accounts receivable and inventory on a short term basis, usually less than one year. This short term financing enables borrowers to finance their cash needs during a business cycle and repay shortly thereafter. In recognition of the rapidly changing small business credit market, the Bank introduced a new unsecured, small business commercial loan product in 1999 that streamlines the application process with a single simplified application. The applicant is approved based on established approval criteria, such as length of business experience, banking relationship and status of applicant's personal credit history. The maximum loan amount allowed for this product is $70,000 per borrower. TRADE FINANCE. For the purpose of financing overseas transactions, the Bank provides short term trade financing to local borrowers in connection with the issuance of letters of credit to overseas suppliers/sellers. As of December 31, 2002, such trade financing totaled $12.5 million and represented 1.8% of total gross loans. Pursuant to such letters of credit, the Bank extends credit to the borrower by providing assurance to the borrower's foreign suppliers that payment will be made upon shipment of goods. Upon shipment of goods, and when the letters of credit are negotiated by the foreign suppliers, the borrower's inventory is financed by the Bank under the approved line of credit facility. The typical term of trade finance is 90 days. The underwriting procedure for this type of credit is the same as the procedure for commercial business loans. CONSUMER LENDING-GENERAL. The Bank offers a wide range of consumer loan products. The primary component of the Bank's consumer loans are residential real estate loans, followed by automobile loans, home equity loans, cash secured loans and credit cards. Other lesser amounts are comprised of reserve and personal loans. All processing of residential real estate loans, automobile and credit card loans are centralized at the Bank's Consumer Loan Center. RESIDENTIAL REAL ESTATE LOANS. The Bank offers residential real estate loans, comprised of both variable and fixed rate, 1-4 unit single family residence, first trust deed loans. As a portfolio lender, the Bank retains the loans and the servicing rights on these loans. Substantially all residential real estate loans involve properties located in the Bank's primary lending area. As of December 31, 2002, residential real estate loans totaled $37.5 million and represented 5.5% of total gross loans. The Bank extends residential real estate loans with an LTV of up to 80% for loan amounts up to $650,000, and an LTV of up to 75% for loan amounts in excess of $650,000 for owner occupied property. The maximum loan amount for this type of loan is $1 million. For non-owner occupied properties, the Bank requires an LTV of at least 70% for loan amounts up to $500,000. The Bank does not make loans of more than $500,000 for non-owner occupied properties. A majority of the residential real estate loans originated by the Bank are 5-year balloon, fixed rate loans, amortizing up to 30 years. The Bank also originates a variety of ARM loans with low initial interest rates fixed for the first six months and which adjust semi-annually thereafter. All ARM loans are tied to the 11th District Cost of Funds Index. Apart from portfolio residential real estate lending, the Bank established loan brokering agreements with several major mortgage lenders in the first quarter of 2002. The new program provides an opportunity for the Bank to provide an additional variety of residential real estate loans offered by major lenders while earning income from the transactions. As an agent of those major lenders, the Bank is taking mortgage loan applications, collecting and processing applicant and property information according to each lender's specific program guidelines, and submitting such processed packages to a lender for approval and funding. In connection with these loan brokering activities, the Bank is responsible for ensuring that no fraud or material misrepresentations are committed by the borrowers when obtaining the loans, and is subject to a repurchase obligation if such fraud or material misrepresentations occur. In order to reduce the risks associated with such repurchase obligations, the Bank has strengthened its due diligence and underwriting criteria for such brokered loans. HOME EQUITY LINES AND LOANS. The Bank offers home equity loans and lines of credit secured by second deeds of trust on 1-4 unit single family residences. At December 31, 2002, total outstanding balances for home equity lines of credit totaled $5.6 million, representing 0.8% of total loans. As of December 31, 2002, home equity loans totaled $465,000 and represented 0.1% of total loans. The Bank also originates cash secured loans and automobile loans, which totaled $5.2 million and $15.8 million, respectively; credit cards which totaled $2.7 million; and others loans (personal and reserve loans) which totaled $270,000, at December 31, 2002. INSTALLMENT LOANS. The Bank offers automobile loans up to 100% of purchase price in case of new automobile or wholesale price listed on Kelly's Blue Book in case of used automobile for loan amounts up to $50,000. The maximum term Bank offers is up to 72 months. As of December 31, 2003, the outstanding balance totaled $15.8 million. The Bank also originates cash secured loans, which totaled $5.2 million at December 31, 2002. OTHER. Other loans at December 31, 2002 totaled $78.2 million or 11.4% of total gross loans. Of this amount, $74.6 million or 95.4% were SBA loans and the remainder were loans and loan participations in approximately ten programs organized under the Community Reinvestment Act, credit cards and a very small balance of reserve accounts (for overdraft protection). The SBA currently guarantees from 75% to 80% of the principal and accrued interest of SBA loans. Loans are provided to eligible applicants or small businesses to finance working capital and the purchase of equipment or real estate. Depending on the use of proceeds, the loan term may range from seven to twenty-five years. The Bank attained its "PLP" (Preferred Lenders Program) with the SBA in 1999, which status permits the Bank to approve SBA guaranteed loans directly. Since June 2001, the Bank purchased SBA guaranteed loans from the secondary market for $33.8 million primarily to reduce its high liquidity position. The purchased loans are 100% secured by the US Small Business Administration. Total SBA loans outstanding as of December 31, 2002 were $74.6 million, compared to $53.4 million and $33.2 million at December 31, 2001 and 2000, respectively. The increase of $21.2 million or 39.7% during 2002 was primarily due to purchases of SBA guaranteed loans for $15.5 million. During 2002, $9.1 million of SBA loans were sold to the secondary market. LOANS INVOLVING COUNTRY RISK. The Bank has historically made the following three types of credit extensions involving exposure to the Korean Economy: (i) extensions of credit to banks in South Korea in the form of Bills Bought transactions ("Bills Bought"); (ii) loans to borrowers in the U. S. secured by stand-by letters of credit issued by banks in South Korea ("Korean L/C Loans"); and (iii) loans to U. S. affiliates/subsidiaries, whose parent company is located in South Korea ("Korean Affiliate Loans"). As a policy of the Bank, all loans involving exposure to the Korean Economy are monitored at regular intervals and reported on to the Bank's Board of Directors. The following table sets forth the amounts of outstanding loans in the above three categories as of the years indicated for South Korea, which is the only country as to which the Bank's total outstandings exceeded one percent (1%) of the Bank's total assets.

LOANS INVOLVING COUNTRY RISK AT DECEMBER 31, --------------- CATEGORY 2002 2001 2000 - -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Bills Bought ................. $ 6,617 $ 9,399 $ 1,573 Korean L/C Loans(1) .......... 17,350 8,700 11,607 Korean Affiliate Loans(2) .... 10,179 9,775 4,430 -------- -------- -------- Total $ 34,146 $ 27,874 $ 17,610

- --------------- (1) In addition, the Bank had unfunded commitments for Korean L/C Loans in the amounts of $2.7 million, $3.2 million and $3.1 million as of December 31, 2002, 2001 and 2000, respectively. (2) In addition, the Bank had unfunded commitments for Korean Affiliate Loans in the amounts of $10.2 million, $5.4 million and $8.5 million as of December 31, 2002, 2001 and 2000, respectively. Bills Bought represents negotiations of multiple short term acceptances drawn under normal commercial letters of credit, and refinancing of sight transactions under similar letters of credit. These transactions are exclusively handled by the Bank's International Department. As of December 31, 2002, the Bank had total outstanding Bills Bought of $6.6 million compared to $9.4 million and $1.6 million outstanding at December 31, 2001 and 2000, respectively. The Bank evaluates the banks in Korea involved in Bills Bought transactions primarily according to publicly available long-term debt and deposit ratings as provided by Moody's, Standard and Poors or other accepted international rating agencies. The Bank has never experienced any losses with respect to such Bills Bought. As of December 31, 2002, the Bank had $17.4 million in Korean L/C Loans, compared to $8.7 million and $11.6 million at December 31, 2001 and 2000, respectively. The Bank also had unfunded commitments for Korean L/C Loans of $2.7 million as of December 31, 2002. These loans are short-term commercial and industrial loans to U. S. borrowers whose business is located and operated in California. The Bank plans to continue extending this type of credit in the future in order to encourage its relationship banking with local customers who are recent immigrants from South Korea and may not yet have adequate credit histories in the U.S. to support more traditional loan products. Some of these domestic borrowers may be subsidiaries of Korean corporations. The Bank evaluates the banks in South Korea from which letters of credit are accepted primarily according to the same procedure described above for Bills Bought transactions. Korean Affiliate Loans totaled $10.2 million as of December 31, 2002, compared to $9.8 million and $4.4 million at December 31, 2001 and 2000, respectively. The Bank also had unfunded commitments for Korean Affiliate Loans of $10.2 million as of December 31, 2002, compared to $5.4 million and $8.5 million at December 31, 2001 and 2000. The aggregate loans outstanding and commitments at December 31, 2002, 2001 and 2000 were $20.3 million, $15.2 million and $12.9 million, respectively. Due to certain historical losses with this type of loan, the Bank instituted a policy in 1999 of not making any new Korean Affiliate Loans unless the borrower meets all applicable underwriting criteria on a stand-alone basis. Renewals of Korean Affiliate Loans of current borrowers and amounts will be permitted on the basis of both credit factors and in consideration of parent/guarantor capacity to perform. As of December 31, 2002, no Korean Affiliate Loans were considered nonperforming by Management. See "-- Nonperforming Assets." All of the Korean Affiliate Loans outstanding at December 31, 2002 represented loans or lines of credit which have been renewed under the current underwriting policies. In addition to the three types of credit extensions listed above, the Bank has historically issued performance letters of credit, which are considered off-balance sheet items, on behalf of certain large, internationally-known Korean companies in connection with such companies' transactions in the U. S. Such performance letters of credit totaled $6.2 million, $5.1 million and $4.4 million as of December 31, 2002, 2001 and 2000, respectively. The Bank has never experienced a demand for payment from the beneficiaries to such letters of credit, and all of the customers for whom such letters of credit have been issued are substantial depositors which have typically maintained balances in excess of the amounts of such letters of credit. NONPERFORMING ASSETS Nonperforming assets are comprised of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, 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. 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 Bank believes the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. OREO acquired in settlement of loans is carried at fair value, less estimated costs to sell. Any excess loan balance over the fair value, less selling costs at the time of acquisition, is charged off to the allowance for loan losses. The following table provides information with respect to the components of the Bank's nonperforming assets as of the dates indicated:

NONPERFORMING ASSETS AT DECEMBER 31, --------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) NONACCRUAL LOANS:(1) Commercial and industrial(2) ............................... $ 1,091 $ 1,043 $ 149 $ 1,625 $ 2,782 Installment loans, net ..................................... 28 4 8 35 40 Real estate loans: Commercial ........................................ - 3,374 - 1,464 5,694 Home mortgage ..................................... 805 197 - 232 285 Home equity ................................................ - 130 68 95 20 Other(3) ................................................... 74 273 335 25 17 Trade Finance .............................................. - - - - - Bills Bought(4) ............................................ - - - - - -------- -------- -------- -------- -------- Total ....................................... 1,998 5,021 560 3,476 8,838 LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING (AS TO PRINCIPAL OR INTEREST): Commercial and Industrial(2) ............................... $ - $ - $ - $ - $ - Installment loans, net ..................................... - - - - - Real estate loans: Commercial ........................................ - - - - - Home mortgage ..................................... - - - - - Home equity ................................................ - - - - - Other(3) ................................................... 28 39 42 23 49 Trade Finance .............................................. - - - - - Bills Bought(4) ............................................ - - - - - -------- -------- -------- -------- -------- Total ....................................... 28 39 42 23 49 RESTRUCTURED LOANS:(5) Commercial and industrial(2) ............................... $ - $ - $ - $ - $ 21 Installment loans, net ..................................... - - - - - Real estate loans: Commercial ........................................ - - - 457 467 Home mortgage ..................................... - - - - - Home equity ................................................ - - - - - Other(3) ................................................... - - 18 - - Trade Finance .............................................. - - - - - Bills Bought(4) ............................................ - - - - - -------- -------- -------- -------- -------- Total ........................................ - - 18 457 488 -------- -------- -------- -------- -------- Total nonperforming loans .................................. 2,026 5,060 620 3,956 9,375 Other real estate owned .................................... - - 375 - 83 -------- -------- -------- -------- -------- Total nonperforming assets ................... $ 2,026 $ 5,060 $ 995 $ 3,956 $ 9,458 ======== ======== ======== ======== ======== Nonperforming loans as a percentage of total gross loans .............................. 0.30% 0.88% 0.13% 1.03% 3.15% Nonperforming assets as a percentage of total gross loans and other real estate owned .. 0.30% 0.88% 0.21% 1.03% 3.17% Allowance for loan losses as a percentage of nonperforming loans ............................ 437.96% 137.09% 1434.68% 211.09% 86.13%

- ----------------- (1) During the year ended December 31, 2002, additional interest income of approximately $41,000 would have been recorded if these loans had been paid in accordance with their original terms and had been outstanding throughout the applicable year then ended or, if not outstanding throughout the applicable year then ended, since origination. (2) Includes Korean L/C Loans and Korean Affiliate Loans. See "-- Loans Involving Country Risk" above. (3) Consists predominantly of SBA loans. (4) See -- Loans Involving Country Risk" above. (5) A "restructured loan" is one where the terms of which were renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. The total nonperforming assets at December 31, 2002 was $2.0 million, compared to $5.1 million and $995,000 at December 31, 2001 and 2000, respectively. Total nonperforming assets were 0.22% of total assets at December 31, 2002 compared to 0.64% and 0.14% of total assets at December 31, 2001 and 2000, respectively. Total nonperforming loans decreased $3.1 million to a total of $2.0 million at December 31, 2002 compared to an increase of $4.1 million from the same period of 2000 to $5.1 million at December 31, 2001 compared with total nonperforming loans of $995,000 at December 31, 2000. The decrease at December 31, 2002 from the same period of 2001 was primarily attributable to an elimination by note sale and a payoff of loans to related borrowers to whom the Bank extended two commercial real estate secured loans totaling $3.0 million. The Bank recognized a gain from the note sale. There is no outstanding OREO at December 31, 2002. ALLOWANCE FOR LOAN LOSSES Credit risk is inherent in making loans. The Bank sets aside an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as the provision for loan losses. Loans are promptly charged against the allowance when, in Management's opinion, they are deemed uncollectable, although the Bank continues to aggressively pursue collection efforts. The Bank formally assesses the adequacy of the allowance on a quarterly basis. The allowance is maintained at a level the Bank considers adequate to cover the inherent risk of loss associated with its loan portfolio under prevailing and anticipated economic conditions. In determining the adequacy of the allowance for loan losses, Management takes into consideration growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan loss experience by the Bank, concentrations of credit risk, delinquency trends, general economic conditions, the interest rate environment and internal and external credit reviews, including (i) detailed analysis of individual loans for which full recovery may not be assured, (ii) loss migration methodology results and (iii) peer group loan loss allowance data. This process involves judgmental discretion, and eventual losses may therefore differ from even the most recent estimates. Due to these limitations, the Bank assumes that there are losses inherent in the current loan portfolio which will be sustained, but which have not yet been identified. Management believes that the allowance is adequate to absorb losses as they arise. However, no assurance can be given that changes in the current economic environment in the Bank's principal market area or other circumstances will not result in increased losses in the Bank's loan portfolio in the future. The table below summarizes the activity in the Bank's allowance for loan losses for the years indicated:

ALLOWANCE FOR LOAN LOSSES YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) BALANCES: Average total loans outstanding during year .. $603,654 $532,441 $444,287 $317,500 $295,788 ======== ======== ======== ======== ======== Total gross loans outstanding at end of year ........................... $683,131 $572,354 $467,807 $385,745 $298,011 ======== ======== ======== ======== ======== ALLOWANCE FOR LOAN LOSSES: Balances at beginning of year ................ $ 9,467 $ 8,895 $ 8,351 $ 8,075 $ 7,980 Charge-offs: Commercial and industrial(1) ............ 1,479 1,094 567 962 2,911 Installment loans, net .................. 18 - 33 17 80 Real estate loans: Commercial .......................... - - - 457 623 Home mortgage ....................... - - - - - Home equity ............................. - - - - 210 Other(2) ................................ 250 214 96 140 227 Trade Finance ........................... 58 - 492 - 10 Bills Bought(3) ......................... - - - - - -------- -------- -------- -------- -------- Total charge-offs ................... 1,805 1,308 1,188 1,576 4,061 Recoveries: Commercial and industrial(1) ............ 70 525 282 1,098 199 Installment loans, net .................. - 9 14 3 42 Real estate loans: Commercial .......................... 10 - 73 304 7 Home mortgage ....................... - - 0 - - Home equity ............................. 1 - 45 229 67 Other(2) ................................ 30 23 16 18 1 Trade Finance ........................... - 24 2 - - Bills Bought(3) ......................... - - - - - -------- -------- -------- -------- -------- Total recoveries .................... 111 581 432 1,652 316 Net loan charge-offs (recoveries) ............ 1,694 727 756 (76) 3,745 Provision for loan losses .................... 1,100 1,300 1,300 200 3,840 -------- -------- -------- -------- -------- Balance at end of year ....................... $ 8,873 $ 9,467 $ 8,895 $ 8,351 $ 8,075 ======== ======== ======== ======== ======== RATIOS: Nonperforming loans to total loans ........... 0.30% 0.88% 0.13% 1.03% 3.15% Nonperforming assets to total loans and other real estate owned ............. 0.30 0.88 0.21 1.03 3.17 Allowance for loan losses to total loans at year end ....................... 1.30 1.65 1.90 2.16 2.71 Allowance for loan losses to total nonperforming loans ..................... 437.96 187.09 1434.68 211.09 86.13 Net loan Charge-offs to allowance for loan looses at end of year .......... 19.10 7.68 11.33 (0.91) 46.38 Net loan Charge-offs to provision for loan looses ......................... 154.05 55.96 58.15 (38.00) 97.52

- ----------------- (1) Includes Korean L/C Loans and Korean Affiliate Loans. See "Lending Activities -- Loans Involving Country Risk" above. (2) Consists predominantly of SBA loans. (3) See "Lending Activities -- Loans Involving Country Risk" above. Net loan charge-offs (recoveries) were $1.7 million, $727,000 and $756,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Gross charge-offs for these same periods were $1.8 million, $1.3 million and $1.2 million, respectively. The increase in charge offs was mainly resulted from the commercial business loan charge offs. For the year ended December 31, 2002, no amounts were charged off on Loans Involving Country Risk, but the Bank charged off a total of $1.8 million, including $1.5 million in commercial and industrial, $150,000 in credit card debt, $58,000 in trade finance, $18,000 in installment, and $100,000 in others. These charge-offs were offset by total recoveries in the amount of $111,000 during the same period. With recoveries, the allowance for loan losses at December 31, 2002 decrease to $8.9 million, compared to $9.5 million, $8.9 million at December 31, 2001 and 2000 respectively. The allowance for loan losses at December 31, 2002 as a percentage of total loans and as a percentage of nonperforming loans was 1.3% and 438.0%, respectively, compared to 1.7% and 187.1% at December 31, 2001 and 1.9% and 1434.7% at December 31, 2000, respectively. The increase in the allowance for loan losses as a percentage of total nonperforming loans was primarily due to the decrease in total nonperforming loans to $2.0 million in 2002 compared to $5.1 million in 2001. The decrease in nonperforming loans in 2002 was primarily attributable to an elimination by note sale and a payoff of loans to related borrowers to whom the Bank extended two commercial real estate secured loans totaling $3.0 million. The Bank recognized a gain from the note sale. The continual decline of allowance for loan losses as a percentage of total gross loans is a reflection of the Bank's loan portfolio growth in the commercial real estate relative to minimal charge-off history on commercial real estate loan portfolio. Based on the current migration methodology used to determine the adequacy of the allowance for loan losses, and the historically low charge-off ratio relative to its portfolio size, the reserve requirement ratio is substantially lower than for other segments of the other loan portfolio, such as commercial and industrial loan portfolio, which has a higher historical charge-off ratio. In view of the potential risks to the Bank presented by another possible deterioration of the Korean Economy, the Bank has taken steps to minimize and mitigate its credit exposure to the Korean Economy. The Bank instituted new underwriting policies regarding Korean Affiliate Loans. Under the new policies, the Bank, in general, does not make any new Korean Affiliate Loans unless the borrower meets all applicable underwriting criteria on a stand-alone basis. Renewals of Korean Affiliate Loans of current borrowers and amounts, will be permitted on the basis of both credit factors and in consideration of parent/guarantor capacity to perform. The Bank has experienced no losses on its Korean L/C Loans for at least the past five years and Management does not intend to reduce this segment of the loan portfolio. See "-- Loans Involving Country Risk." The following table provides a breakdown of the allowance for loan losses by category as of the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for loan losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amounts available for charge-offs that may occur within these categories.

ALLOCATION OF ALLOWANCE OF LOAN LOSSES AT DECEMBER 31, --------------- 2002 2001 2000 ---- ---- ---- % OF LOANS % OF LOANS % OF LOANS IN CATEGORY IN CATEGORY IN CATEGORY BALANCE AT END OF YEAR TO TOTAL TO TOTAL TO TOTAL APPLICABLE TO AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS ------------- -------- ----------- -------- ----------- -------- ----------- (DOLLARS IN THOUSANDS) Commercial and industrial(1) ... $ 5,495 18.35% $ 5,753 19.31% $ 4,309 19.42% Term Federal funds sold ........ - - - - - - Installment loans, net ......... 30 3.11 51 2.54 38 3.72 Real estate loans: Commercial .............. 1,938 57.94 2,318 54.39 1,598 53.54 Home mortgage ........... 0 5.48 71 9.88 143 12.10 Home equity .................... 2 0.88 64 0.82 223 1.01 Other(2) ....................... 413 11.44 346 10.02 450 7.94 Trade Finance .................. 467 1.83 303 1.40 552 1.94 Bills Bought(3) ................ 28 0.97 61 1.64 5 0.34 Unallocated(4) ................. 500 _ 500 - 1,577 -------- -------- -------- -------- -------- -------- Total .............. $ 8,873 100.00% $ 9,467 100.00% $ 8,895 100.00% ======== ======== ======== ======== ======== ========

ALLOCATION OF ALLOWANCE OF LOAN LOSSES AT DECEMBER 31, --------------- 1999 1998 ---- ---- % OF LOANS % OF LOANS IN CATEGORY IN CATEGORY BALANCE AT END OF YEAR TO TOTAL TO TOTAL APPLICABLE TO AMOUNT LOANS AMOUNT LOANS ------------- -------- ----------- -------- ----------- (DOLLARS IN THOUSANDS) Commercial and industrial(1) ... $ 3,288 22.42% $ 4,420 22.98% Term Federal funds sold ........ - - - 6.71 Installment loans, net ......... 64 2.33 68 4.48 Real estate loans: Commercial .............. 1,524 46.34 1,617 43.56 Home mortgage ........... 135 13.37 142 11.36 Home equity .................... 394 1.07 443 1.56 Other(2) ....................... 542 6.27 431 6.63 Trade Finance .................. 267 2.47 37 2.71 Bills Bought(3) ................ 21 5.74 - - Unallocated(4) ................. 2,116 917 -------- -------- -------- -------- Total .............. $ 8,351 100.00% $ 8,075 100.00% ======== ======== ======== ========

(1) Includes Korean L/C Loans and Korean Affiliate Loans. See "Lending Activities -- Loans Involving Country Risk" above. (2) Consists predominantly of SBA loans. (3) See "Lending Activities -- Loans Involving Country Risk" above. (4) As of December 31, 2002 and 2001, the unallocated solely consists of International Transfer Risk allocation for potential impact on Korean guarantors, as well as for Korean banks that support Korean L/C Loans. INVESTMENT PORTFOLIO The investment securities portfolio is the Bank's second major interest earning asset, the Bank classifies its investments into two portfolios: those held-to-maturity and those available-for-sale. The Bank has no investments which are classified as a trading portfolio. The Bank's securities portfolio is managed in accordance with a comprehensive written Investment Policy which addresses strategies, types and levels of allowable investments and which is reviewed from time to time, at least on an annual basis, by the Board of Directors. The management of the securities portfolio is set in accordance with strategies developed and overseen by the Bank's Asset/Liability Management and Investment Committee. The Bank's Investment Policy authorizes the Bank to invest in Fed funds sold (with limits as to how much may be sold to any one institution), repurchase agreements (not to exceed a three month period and only to be engaged in with correspondent banks, authorized broker/dealers and the Bank's customers), certificates of deposit in other federally insured financial institutions (with a maturity of five years or less and of no more than $100,000 per institution), U. S. Treasury obligations (with a maturity up to fifteen years), U. S. Agency obligations (with a maturity of up to ten years), U. S. Government agency mortgage-backed securities (with average life of up to fifteen years and limited to no more than 40% of the Bank's total securities portfolio), state and municipal bonds (with limits as to size, quality and term), bankers acceptances (limited to no more than 10% of the Bank's total securities portfolio), Eurobonds (must be rated "A2" or better by Moody's at purchase, have a term not exceeding 10 years and be limited to 20% of the Bank's total securities portfolio) and commercial paper (with a maturity of up to three months and limited to 10% of the Bank's total securities portfolio). At December 31, 2002, the Bank's investment portfolio amounted to $154.0 million or 16.4% of total assets, compared to $139.7 million or 17.7% of total assets at December 31, 2001 and $156.1 million or 21.3% of total assets at December 31, 2000. The net increase of $14.3 million or 10.3% in 2002 resulted from the purchase of securities of $129.1 million offset by matured securities of $58.7 million and sales of securities of $29.3 million. The decrease of $16.4 million or 10.5% at December 31, 2001 compared to the same period of prior year resulted from the $86.1 million of matured securities offset by $66.6 million of purchased securities and the $3.1 million increase in fair market value of available-for-sale securities during 2001. The net increase in the investment portfolio was due to an implementation of the wholesale funding strategy and sales of investment securities. The following table summarizes the amortized cost, fair value and distribution of the Bank's investment securities as of the dates indicated:

INVESTMENT PORTFOLIO AT DECEMBER 31, --------------- 2002 2001 2000 ---- ---- ---- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE COST VALUE ---- ----- ---- ----- ---- ----- (DOLLARS IN THOUSANDS) AVAILABLE-FOR-SALE: U. S. Treasury securities ................ $ 1,003 $ 1,074 $ 1,504 $ 1,573 $ 11,506 $ 11,516 U. S. Government agencies ................ 25,996 26,290 71,000 72,687 75,000 75,099 Mortgage-backed securities(1) ............ 34,000 34,730 61,090 61,592 59,556 58,752 State and political subdivisions ........................... 2,507 2,607 3,699 3,810 4,735 4,730 ---------- ---------- ---------- ---------- ---------- ---------- Total available-for-sale ............... 63,506 64,701 137,293 139,662 150,797 150,097 HELD-TO-MATURITY: U. S. Government agencies ................ - - - - 6,001 6,033 Mortgage-backed securities(1) ............ 89,314 90,799 - - 6 6 ---------- ---------- ---------- ---------- ---------- ---------- Total held-to-maturity ................. 89,314 90,799 - - 6,007 6,039 ---------- ---------- ---------- ---------- ---------- ---------- Total investment securities .......... $ 152,820 $ 155,500 $ 137,293 $ 139,662 $ 156,804 $ 156,136 ========== ========== ========== ========== ========== ==========

- -------------- (1) Principal balances may be prepaid before contractual maturity date. The following table summarizes the maturity and repricing schedule of the Bank's investment securities and their weighted average yield at December 31, 2002: INVESTMENT MATURITIES AND REPRICING SCHEDULE

AFTER ONE BUT AFTER FIVE BUT WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS ----------------- ----------------- ---------------- AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) ------ -------- ------ -------- ------ -------- (DOLLARS IN THOUSANDS) AVAILABLE-FOR-SALE: U. S. Treasury securities ........... - - $ 1,074 5.82% - - Obligations of other U. S. Government agencies ....................... 6,171 5.94% 20,119 4.16% - - Mortgage-backed securities(2) ....... 16,888 4.36% 14,304 5.93% - 0.00% Obligations of states and political subdivisions ................... 1,543 6.13% 1,064 6.17% - - Total available-for-sale ............ 24,602 5.77% 36,561 5.60% - 0.00% ------- ------ -------- ------ ---- ------ HELD-TO-MATURITY: Mortgage-backed securities(2) ....... - - 89,314 4.37% - - Total held-to-maturity .............. - - 89,314 4.37% - - ------- ------ -------- ------ ---- ------ Total investment securities ......... $24,602 5.77% $125,875 5.15% - 0.00% ======= ====== ======== ====== ==== ======

AFTER TEN YEARS TOTAL ---------------- ----- AMOUNT YIELD(1) AMOUNT YIELD(1) ------ -------- -------- -------- (DOLLARS IN THOUSANDS) AVAILABLE-FOR-SALE: U. S. Treasury securities ........... - - $ 1,074 5.82% Obligations of other U. S. Government agencies ....................... - - 26,290 5.47% Mortgage-backed securities(2) ....... 3,538 7.04% 34,730 5.94% Obligations of states and political subdivisions ................... - - 2,607 6.09% Total available-for-sale ............ 3,538 7.04% 64,701 5.77% ------ ------ -------- ------ HELD-TO-MATURITY: Mortgage-backed securities(2) ....... - - 89,314 4.37% Total held-to-maturity .............. - - 89,314 4.37% ------ ------ -------- ------ Total investment securities ......... $3,538 7.04% $154,015 5.55% ====== ====== ======== ======

- ---------------- (1) Yields on tax-exempt obligations have not been computed on a tax equivalent basis because the percentage of tax-exempt securities is minimal. (2) Principal balances may be prepaid before contractual maturity date. NON-INTEREST EARNING ASSETS The largest portion of noninterest-earning assets as of December 31, 2002 consisted of cash and due from banks. Cash and due from banks consisted of cash on hand, deposits with correspondent banks and deposits with the Federal Reserve Bank of San Francisco which included required reserves. The outstanding balance of cash and due from banks was $24.1 million, $26.0 million and $31.7 million as of December 31, 2002, 2001 and 2000, respectively. The ratio of average cash and due from banks to the average total assets was 2.9%, 3.3% and 4.8% for the years ended December 31, 2002, 2001 and 2000, respectively. The Bank maintained balances with correspondent banks to cover daily in-clearings and other activity. OTHER REAL ESTATE OWNED Other real estate owned acquired in settlement of loans is carried at the lower of cost or fair value, less estimated cost to sell and any excess loan balance over the fair value, less selling cost at the time of acquisition, is charged to the allowance for loan losses. The Bank had no OREO for the years ended December 31, 2002 and 2001. During 2001, the Bank acquired a property in the amount of $117,000 and disposed of two properties including the one that was acquired during 2000 in the amount of $375,000 with a gain of $115,460. At December 31, 2000, the outstanding OREO was $375,000. DEPOSITS Deposits are the Bank's primary source of funds. Total deposits at December 31, 2002, 2001 and 2000 were $760.0 million, $692.8 million and $646.4 million, respectively. The Bank's average deposits were $733.2 million, $725.6 million and $582.0 million for the years ended December 31, 2002, 2001 and 2000, respectively. The ratio of average noninterest-bearing deposits to average total deposits was 28.7%, 26.5% and 30.5% for the years ended December 31, 2002, 2001 and 2000, respectively. The Bank's average total cost of deposits was 1.74%, 3.06% and 3.36% for the years ended December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, core deposits, representing demand deposits and low cost deposits, were $401.5 million, compared to $341.9 million and $313.7 million at December 31, 2001 and 2000, respectively, representing 52.8% of total deposits at December 31, 2002 compared to 47.4% and 53.0% at December 31, 2001 and 2000, respectively. The average core deposits for 2002 were $379.7 million, compared to $343.7 million and $308.7 million for 2001 and 2000, respectively. The Bank offers a wide array of deposit products in order to satisfy its customers' needs, including noninterest-bearing checking accounts, interest-bearing checking and savings accounts, money market accounts and TCD's, through its branch system in order to foster retail deposit growth and to maintain low cost of deposits. The Bank does not hold any brokered deposits. The following tables summarize the distribution of average daily deposits and the average daily rates paid for the years indicated:

AVERAGE DEPOSITS YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ------- ---- ------- ---- ------- ---- (DOLLARS IN THOUSANDS) Demand, noninterest-bearing ............ $ 210,778 -% $ 192,589 -% $ 177,727 -% Money market ........................... 118,875 1.87 102,151 2.69 83,797 3.46 Super NOW .............................. 7,517 0.52 6,141 0.96 5,682 1.57 Savings ................................ 42,505 0.68 42,833 1.32 41,515 2.50 Time certificates of deposit of $100,000 or more .................. 249,205 2.57 273,266 5.06 178,514 5.93 Other time ............................. 104,355 3.05 108,587 4.62 94,769 5.22 ---------- ---- ---------- ---- ---------- ---- Total deposits .................. $ 733,235 1.66% $ 725,567 3.06% $ 582,004 3.36% ========== ==== ========== ==== ========== ====

The following table sets forth the scheduled maturities of the Bank's time deposits in denominations of $100,000 or more at December 31, 2002: MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

AT DECEMBER 31, 2002 ---------------------- (DOLLARS IN THOUSANDS) Three months or less................................................. $ 154,243 Over three months through six months................................. 55,803 Over six months through twelve months................................ 46,794 Over twelve months................................................... 1,812 --------- Total....................................................... $ 258,652 =========

BORROWINGS FROM THE FEDERAL HOME LOAN BANK The Bank became a member of the FHLB in October 1999. The Bank maintains a secured credit facility with the FHLB of San Francisco against which the Bank may take advances. The Bank utilizes FHLB advances to fund loan growth when longer-term deposit growth has not kept pace with loan demand. The terms of this credit facility require the Bank to maintain in safekeeping with the FHLB eligible collateral of at least 100% of outstanding advances. The outstanding FHLB advances were $70.0 million at December 31, 2002 and zero at December 31, 2001. The average outstanding amount for 2002 was $33.3 million and the weighted average rate was 3.5%. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information concerning quantitative and qualitative disclosures about market risk called for by Item 305 of Regulation S-K is included as part of Item 7 above. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk/Interest Rate Risk Management". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and independent auditors' reports are included in here in:

PAGE ---- Independent Auditor's Report from PricewaterhouseCoopers LLP...................................... 43 Independent Auditor's Report from KPMG LLP........................................................ 44 Balance Sheets December 31, 2002 and 2001..................................................................... 45 Statements of Operations Years Ended December 31, 2002, 2001 and 2000................................................... 46 Statements of Changes in Stockholders' Equity and Comprehensive Income Years Ended December 31, 2002, 2001 and 2000................................................... 47 Statements of Cash Flows Years Ended December 31, 2002, 2001 and 2000................................................... 48 Notes to Financial Statements..................................................................... 49

REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors and Stockholders of Pacific Union Bank: In our opinion, the accompanying balance sheet as of December 31, 2002 and the related statements of operations, changes in stockholders' equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of Pacific Union Bank ("the company") at December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of December 31, 2001 and for each of the two years then ended were audited by other independent accountants whose report dated January 11, 2002, except as to notes 14 (c) and 15 of the notes to the financial statements accompanying their report, expressed an unqualified opinion on those statements. As discussed in note 14, the company is subject to a consent order issued by the FDIC. Los Angeles, California January 20, 2003 INDEPENDENT AUDITORS' REPORT The Board of Directors Pacific Union Bank: We have audited the accompanying balance sheet of Pacific Union Bank as of December 31, 2001 and the related statements of operations, changes in stockholders' equity and comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2001. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pacific Union Bank as of December 31, 2001 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Los Angeles, California January 11, 2002 PACIFIC UNION BANK Balance Sheets December 31, 2002 and 2001

2002 2001 ------------- ------------- ASSETS Cash and due from banks - demand $ 24,054,519 $ 25,971,442 Federal funds sold 62,500,000 42,000,000 Due from banks - interest-bearing 210,654 102,511 Federal Home Loan Bank Stock 3,537,800 1,503,800 Securities held-to-maturity, at amortized cost (fair value of $90,798,966 in 2002) (note 2) 89,313,683 -- Securities available-for-sale, at fair value (note 3) 64,701,421 139,661,532 Loans 683,131,191 572,354,060 Less allowance for loan losses (8,872,995) (9,467,490) ------------- ------------- Net loans (note 4) 674,258,196 562,886,570 ------------- ------------- Customers' acceptance liabilities 657,760 598,373 Bank premises and equipment, net (note 5) 6,610,142 9,338,467 Accrued interest receivable 3,404,574 3,455,021 Deferred tax asset (note 8) 4,663,046 3,318,530 Income taxes receivable 1,116,038 -- Other assets 1,967,404 672,126 ------------- ------------- Total assets $ 936,995,237 $ 789,508,372 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (note: 7) Demand, non-interest bearing $ 223,377,195 $ 203,360,228 Demand, interest-bearing 7,602,024 6,570,226 Money market and savings 170,486,917 131,958,322 Time certificates of deposit: Less than $100,000 99,876,831 102,302,690 $100,000 or more 258,652,585 248,560,063 ------------- ------------- Total deposits 759,995,552 692,751,529 ------------- ------------- Federal Home Loan Bank advances 70,000,000 -- Acceptance liabilities 657,760 598,373 Accrued interest payable 3,140,064 4,684,665 Other liabilities 2,325,902 1,513,748 ------------- ------------- Total liabilities 836,119,278 699,548,315 ------------- ------------- Commitments and Contingencies (note 11) Stockholders' equity (notes 3, 9, and 15): Common stock, $6 par value. Authorized 30,000,000 shares; issued and outstanding 10,621,554 shares in 2002 and 10,606,417 shares in 2001 63,724,507 56,820,088 Capital surplus 22,174,825 15,860,704 Retained earnings 14,283,984 15,703,322 Accumulated other comprehensive gain - net unrealized gain on securities available-for-sale 692,643 1,575,943 ------------- ------------- 100,875,959 89,960,057 ------------- ------------- $ 936,995,237 $ 789,508,372 ============= =============

See accompanying note to financial statements. PACIFIC UNION BANK Statements of Operations Years ended December 31, 2002, 2001 and 2000

2002 2001 2000 ---- ---- ---- Interest income: Interest and fees on loans $ 37,107,264 $ 42,257,739 $ 42,486,663 Dividend on Federal Home Loan Bank stock 115,457 75,617 149,120 Interest on securities held-to-maturity 2,013,163 265,552 647,481 Interest on securities available-for-sale 5,979,170 9,244,815 8,609,965 Interest on federal funds sold 1,143,880 3,382,300 1,216,959 Other interest income 19,176 50,238 58,586 ------------ ------------- -------------- Total interest income 46,378,110 55,276,261 53,168,774 ------------ ------------- -------------- Interest expense: Demand - interest bearing 38,953 58,721 89,458 Savings and money market 2,515,999 3,308,177 3,941,294 Time certificates of deposit: Less than $100,000 3,179,952 5,015,274 4,948,032 $100,000 or more 6,412,516 13,820,403 10,590,668 Other borrowings 1,163,409 907 556,578 ------------ ------------- -------------- Total interest expense 13,310,829 22,203,482 20,126,030 ------------ ------------- -------------- Net interest income before provision for loan losses 33,067,281 33,072,779 33,042,744 Provision for loan losses 1,100,000 1,300,000 1,300,000 ------------ ------------- -------------- Net interest income after provision for loan losses 31,967,281 31,772,779 31,742,744 ------------ ------------- -------------- Other income: Service charges on deposit accounts 6,484,137 6,572,888 5,652,034 Remittance fees 912,045 918,421 996,139 Letter of credit related fees 807,397 767,741 908,662 Net other real estate owned income -- 113,708 357,226 Gain on sale of loans 705,351 -- -- Gain on sale of securities 824,472 -- -- Gain on sale of premise 1,193,797 -- -- Other operating income 1,718,108 1,533,777 1,421,137 ------------ ------------- -------------- Total other income 12,645,307 9,906,535 9,335,198 ------------ ------------- -------------- Other expenses: Salaries and employee benefits 12,347,558 11,946,311 11,572,648 Security guards 937,700 868,007 783,381 Net occupancy expense 2,872,931 2,902,808 2,893,910 Equipment expense 1,384,149 1,246,714 1,077,869 Data processing 1,942,384 1,713,408 1,266,878 Net other real estate owned expense 41 -- -- Office supplies 482,764 552,627 561,250 Legal and professional 1,206,560 756,620 479,877 Advertising and public relations 844,688 568,332 578,612 Communication expenses 1,034,561 947,838 926,099 Other operating expenses 2,503,874 1,893,751 1,942,937 ------------ ------------- -------------- Total other expenses 25,557,210 23,396,416 22,083,461 ------------ ------------- -------------- Income before income taxes 19,055,378 18,282,898 18,994,481 Income taxes 7,404,000 6,711,000 6,843,500 ------------ ------------- -------------- Net income $ 11,651,378 $ 11,571,898 $ 12,150,981 ============ ============= ============== Net income per share (Note 15) Basic $ 1.10 $ 1.09 $ 1.32 Diluted 1.09 1.08 1.32 ============ ============= ============== Weighted-average common shares outstanding (Note 15) Basic 10,616,017 10,600,306 9,180,807 Diluted 10,702,092 10,695,306 9,188,491

See accompanying note to financial statements. PACIFIC UNION BANK Statements of Changes in Stockholders' Equity and Comprehensive Income Years ended December 31, 2002, 2001 and 2000

Accumulated Number of other Total shares Common Capital Retained comprehensive stockholder's Outstanding stock surplus earnings income (loss) equity ----------- ----- ------- -------- ------------- ------ Balance at December 31, 1999 6,666,667 $ 40,000,000 $ 10,000,000 $ 9,528,293 $ (3,086,606) $ 56,441,687 Issuance of common stock 1,935,000 11,610,000 1,464,563 -- -- 13,074,563 Cash dividend paid -- -- -- (8,000,000) -- (8,000,000) Comprehensive income: Net income -- -- -- 12,150,981 -- 12,150,981 Change in unrealized gain (loss) on securities available-for-sale, net of tax effect of $1,345,034 -- -- -- -- 2,631,541 2,631,541 Total comprehensive income -- -- -- -- -- 14,782,522 ---------- ------------- ------------- --------------- -------------- ------------- Balance at December 31, 2000 8,601,667 $ 51,610,000 $ 11,464,563 $ 13,679,274 $ (455,065) $ 76,298,772 ============= Stock dividend 860,164 5,160,984 4,386,836 (9,547,820) -- -- Cash paid for fractional shares -- -- -- (30) -- (30) Stock options exercised 8,184 49,104 9,305 -- -- 58,409 Comprehensive income: Net income -- -- -- 11,571,898 -- 11,571,898 Change in unrealized gain (loss) on securities available-for-sale, net of tax effect of $1,037,150 -- -- -- -- 2,031,008 2,031,008 Total comprehensive income -- -- -- -- -- 13,602,906 ---------- ------------- ------------- --------------- -------------- ------------- Balance at December 31, 2001 9,470,015 $ 56,820,088 $ 15,860,704 $ 15,703,322 $ 1,575,943 $ 89,960,057 ============= Stock options exercised 14,992 85,137 11,545 -- -- 96,682 Stock dividend 1,136,547 6,819,282 6,251,009 (13,070,291) -- -- Non qualified stock options exercised -- 51,567 -- -- 51,567 Cash paid for fractional shares -- -- -- (425) -- (425) Comprehensive income: Net income -- -- -- 11,651,378 -- 11,651,378 Change in unrealized gain (loss) on securities available-for-sale, net of tax effect of $289,515 -- -- -- -- (883,300) (883,300) ------------- Total comprehensive income -- -- -- -- -- 10,768,078 ---------- ------------- ------------- --------------- -------------- ------------- Balance at December 31, 2002 10,621,554 $ 63,724,507 $ 22,174,825 $ 14,283,984 $ 692,643 $ 100,875,959 ========== ============= ============= =============== ============== =============

See accompanying notes to financial statements. PACIFIC UNION BANK Statements of Cash Flows Years ended December 31, 2002, 2001 and 2000

2002 2001 2000 ---- ---- ----- Cash flows from operating activities: Net income $ 11,651,378 $ 11,571,898 $ 12,150,981 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses 1,346,077 1,358,581 1,267,565 Provision for loan losses 1,100,000 1,300,000 1,300,000 Gain on sale of securities (824,472) -- -- Amortization of premium on securities held-to-maturity, net (722,824) 1,387 29,948 Amortization of premium on securities available-for-sale, net (100,250) 118,990 69,430 Gain on disposal of Bank premises (1,193,797) -- -- Net (gain) loss on disposal of Bank equipment (6,114) 9,084 (18,864) Gain on sale of loans (705,351) -- -- Origination of loans held for sale (2,260,426) -- -- Proceeds from sale of loans held for sale 2,380,000 -- -- Net gain on sale of other real estate owned -- (115,460) (362,473) Decrease (increase) in accrued interest receivable 50,447 1,479,283 (894,692) Increase in deferred income taxes (1,055,001) (479,999) (365,201) (Increase) decrease in income taxes receivable (1,116,038) 539,950 (145,686) Stock dividend on Federal Home Loan Bank stock (102,700) (89,500) (127,600) (Increase) decrease in other assets (1,295,278) 59,979 (89,092) (Decrease) increase in accrued interest payable (1,544,601) (1,627,173) 3,064,084 Increase (decrease) in other liabilities 812,154 (250,058) (42,112) ------------ ------------- ------------ Net cash provided by operating activities 6,413,204 13,876,962 15,836,288 ------------ ------------- ------------ Cash flows from investing activities: (Increase) decrease in Federal Home Loan Bank stock (1,931,300) -- 713,300 Proceeds from maturities and redemptions of securities held-to-maturity 11,883,552 6,005,687 5,724,326 Proceeds from maturities and redemptions of securities available-for-sale 73,260,223 97,863,961 22,188,501 Proceeds from sale of securities available-for-sale 30,125,842 -- -- Purchase of securities held-to-maturity (100,474,410) -- -- Purchase of securities available-for-sale (28,674,047) (84,479,380) (24,752,854) Proceeds from recoveries of written-off loans 110,488 580,525 431,849 Net increase in loans (111,996,337) (105,855,094) (83,845,944) Purchases of Bank premises and equipment (1,013,395) (741,232) (1,884,261) Proceeds from sale of Bank premises and equipment 3,595,554 -- 48,700 Proceeds from sale of other real estate owned -- 490,943 582,929 ------------ ------------- ------------ Net cash used in investing activities (125,113,831) (86,134,590) (80,793,454) ------------ ------------- ------------ Cash flows from financing activities: Net increase (decrease) in demand deposits, non-interest bearing 20,016,967 14,207,901 (7,669,415) Net increase (decrease) in demand deposits, interest-bearing 1,031,798 (32,665) 922,505 Net increase in money market and savings deposits 38,528,595 14,048,687 15,105,770 Net increase in time certificates of deposit 7,666,663 18,123,837 104,924,896 Increase in other borrowed funds 70,000,000 -- -- Proceeds from issuance of common stock -- -- 13,074,563 Proceeds from exercise of stock options 148,249 58,409 -- Cash dividends paid -- -- (8,000,000) Cash paid for fractional shares (425) (30) -- ------------ ------------- ------------ Net cash provided by financing activities 137,391,847 46,406,139 118,358,319 ------------ ------------- ------------ Net increase (decrease) in cash and cash equivalents 18,691,220 (25,851,489) 53,401,153 ------------ ------------- ------------ Cash and cash equivalents at beginning of year 68,073,953 93,925,442 40,524,289 ------------ ------------- ------------ Cash and cash equivalents at end of year $ 86,765,173 $ 68,073,953 $ 93,925,442 ============ ============= ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 14,855,429 $ 23,830,656 $ 17,061,946 Income taxes 8,757,760 6,134,000 7,416,000 ============ ============= ============ Noncash investing and financing activities: Real estate acquired in settlement of loans $ -- $ 117,000 $ 595,939 Stock dividend 13,070,291 9,547,820 -- ============ ============= ============

See accompanying notes to financial statements. PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Pacific Union Bank (the Bank), formerly known as California Korea Bank, was incorporated as a state-chartered bank in February 1974. The Bank currently operates ten banking offices in Southern California and two banking offices in Northern California. The Bank also has a loan production office in Seattle, Washington. During 2000, the Bank issued common stock in an initial public offering. Korea Exchange Bank ("KEB"), formally the sole owner of the Bank, now owns 62.4% of the outstanding shares. The remaining shares are publicly traded. (a) GENERAL The accounting and reporting policies of the Bank are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The financial statements are generally prepared on the accrual basis of accounting. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. (b) SECURITIES HELD-TO-MATURITY The Bank has classified certain securities as held-to-maturity securities. Securities held-to-maturity are carried at cost, adjusted for the accretion of discounts and the amortization of premiums. The Bank classifies securities as held-to-maturity when it determines that it has the ability and intent to hold such securities to maturity. Accreted discounts and amortized premiums are included in interest income. Gains and losses realized from unforeseen disposition, or determination of impairment of value deemed other than temporary, of securities held-to-maturity are recorded in income using the specific-identification method. (c) SECURITIES AVAILABLE-FOR-SALE The Bank has classified certain securities as available-for-sale. The Bank classifies securities as available-for-sale when it determines that such securities may be sold at a future date or if there are foreseeable circumstances under which the Bank would sell such securities. Securities designated as available-for-sale are recorded at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income until realized. Accreted discounts and amortized premiums are included in interest income. Gains and losses realized from disposition, or determination of impairment of value deemed other than temporary, of securities available-for-sale are recorded in income using the specific-identification method. (d) LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are recorded in the financial statements at the principal amount outstanding, net of unearned income and the allowance for loan losses. Interest income is accrued on all loans, except when loans are delinquent 90 days or more, at which time such loans are generally placed on a nonaccrual status. Nonaccrual loans are reclassified to accrual status when the Bank has received a minimum of six full payments based on the contractual terms of the loan agreement and management determines that future payments can be sustained to support the overall value of the loan. The allowance for loan losses is maintained at a level considered adequate by management to provide for potential loan losses. Management, in determining the adequacy of the allowance for loan losses as well as the appropriate provision for loan losses in any given year, takes into consideration (1) detailed analysis of individual loans for which full recovery may not be assured, (2) loan loss experience, (3) growth in the loan portfolio, (4) an assessment of the effect of current economic conditions on the loan portfolio and (5) examinations conducted by the Bank's supervisory authorities. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan loss provisions, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 Management, based on current information and events regarding the borrowers' ability to repay their obligations, evaluates individual loans for impairment. A loan is considered to be impaired when it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured 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 impairment is measured based on the fair value of the collateral if the loan is collateral dependent. Impairment losses are included in the allowance for loan losses accounts through a charge to the provision for loan losses. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for nonaccrual. (e) OTHER REAL ESTATE OWNED Other real estate owned acquired in settlement of loans is carried at the lower of cost or fair value, less estimated costs to sell. Any excess loan balance over the fair value, less selling costs at the time of acquisition, is charged to the allowance for loan losses. Operating expenses of such property, net of related income, subsequent declines in estimated fair value and gains and losses on their disposition, are included in other income or expense, as appropriate. (f) LOAN FEES Loan origination fees and certain direct loan origination costs associated with the originated loans are deferred and recognized over the lives of the loans as an adjustment to the loans' yield. The Bank does not amortize net deferred loan fees for nonaccrual loans. (g) BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of Bank premises and equipment are provided on the straight-line method over the following estimated useful lives: Building 25 years Equipment and furnishings 3 to 10 years Leasehold improvements Life of lease or improvements, whichever is shorter (h) INCOME TAXES The Bank provides for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Bank provides for California franchise taxes using the water's-edge method based on the total U.S. income of KEB branches, agency and subsidiary. Accordingly, the provision for California franchise taxes provided may be different from the amount computed by applying the California franchise tax rate to income before income taxes. (i) COMPREHENSIVE INCOME Comprehensive income consists of net income and net unrealized gains (losses) on securities available-for-sale and is presented in the statement of stockholders' equity and comprehensive income. (j) RECLASSIFICATIONS Certain reclassifications of prior year's data have been made to conform to the current year presentation. (k) STATEMENT OF CASH FLOWS For purposes of the statement of cash flows, the Bank considers "cash and due from banks - demand," "federal funds sold" and "due from banks - interest-bearing" as cash and cash equivalents. PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 (l) RECENT ACCOUNTING PRONOUNCEMENTS In, May 2002, Statement of Financial Accounting Standards No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections (SFAS No. 145), was issued. SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will no longer be permitted for certain extinguishments considered to be part of a company s risk management strategy. SFAS 145 also amends SFAS No. 13 to require certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). SFAS No. 145 is effective for financial statements issued after May 15, 2002, and with respect to the impact of the reporting requirements of changes made to SFAS No. 4 for fiscal years beginning after May 15, 2002. The Bank does not expect the adoption of SFAS No. 145 to have a material impact on its financial condition or results of operations In November 2002, FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34, (FIN No. 45) was issued. FIN No. 45 clarifies requirements relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires that upon issuance of a guarantee, companies recognize a liability for the fair value of the obligation it assumes under that guarantee. The Company has adopted the annual disclosure provisions of FIN No. 45 in the year ended December 31, 2002 consolidated financial statements. The Bank will adopt the provisions for initial recognition and measurement and interim disclosures during the first quarter of 2003. The Bank is currently evaluating the impact of adopting FIN No. 45. In October 2002, Statement of Financial Accounting No. 147, Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 applies to all acquisitions of financial institutions except those between mutual enterprises. This Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. The provisions of this Statement relating to the application of the purchase method of accounting, was effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions of this Statement relating to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets were effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets in were effective on October 1, 2002, with earlier application permitted. The adoption of FASB No. 147 is not expected to have a material effect on the financial statements. In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123 (SFAS No. 148), was issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation ( SFAS No. 123 ), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in not only annual, but also interim financial statements about the effect the fair value method would have had on reported results. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. The Bank is currently evaluating the impact of adopting SFAS No. 148. In January 2003, The Financial Accounting Standards Board (FASB or the "Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation addresses consolidation by business enterprises of variable interest entities and clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Certain PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 disclosures are effective immediately. The adoption of FIN No. 46 is not expected to have a material effect on the financial statements. (2) SECURITIES HELD-TO-MATURITY The amortized cost, estimated fair value and maturities of securities held-to-maturity at December 31, 2002 are summarized as follows:

2002 -------------------------------------------------------------------------- AMORTIZED GROSS GROSS ESTIMATED FAIR COST UNREALIZED GAINS UNREALIZED LOSSES VALUE ------------ ---------------- ------------------ -------------- Securities held-to-maturity: Mortgage-backed securities $ 89,313,683 1,485,283 -- $ 90,798,966 ------------ --------- ------ ------------- Total $ 89,313,683 1,485,283 -- $ 90,798,966 ============ ========= ====== =============

Securities held-to-maturity with an amortized cost of $89,313,683 at December 31, 2002 were pledged to secure a borrowing line of credit and for other purposes as required or permitted by law. (3) SECURITIES AVAILABLE-FOR-SALE The following is a summary of the major components of securities available-for-sale and a comparison of amortized cost, gross unrealized gains and losses, estimated fair value and maturities at December 31, 2002 and 2001:

2002 -------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED FAIR COST GAINS LOSSES VALUE ----------- ----------- ----------- -------------- Securities available-for-sale: U.S. Treasury securities: Due in one year or less $ -- -- -- $ -- Due after one year through five years 1,002,619 70,975 -- 1,073,594 U.S. government agencies: Due in one year or less 6,000,000 171,477 -- 6,171,477 Due after one year through five years 19,995,990 122,985 -- 20,118,975 Mortgage-backed securities 33,999,977 730,101 -- 34,730,078 State and political subdivisions : Due in one year or less 1,504,263 39,121 -- 1,543,384 Due after one year through five years 1,003,329 60,584 -- 1,063,913 ----------- ---------- ----------- -------------- Total $63,506,178 1,195,243 -- $ 64,701,421 =========== ========== =========== ==============

2001 ------------------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED FAIR COST GAINS LOSSES VALUE ------------ ------------ ------------ -------------- Securities available-for-sale: U.S. Treasury securities: Due in one year or less $ 500,000 11,250 -- $ 511,250 Due after one year through five years 1,004,233 57,017 -- 1,061,250 U.S. government agencies: Due in one year or less 4,000,000 31,106 -- 4,031,106 Due after one year through five years 67,000,000 1,656,281 -- 68,656,281 Mortgage-backed securities 61,090,062 546,404 (44,972) 61,591,494 State and political subdivisions : Due in one year or less 1,180,986 17,628 -- 1,198,614 Due after one year through five years 2,518,192 93,345 -- 2,611,537 ------------ ----------- ------- ------------- Total $137,293,473 2,413,031 (44,972) $ 139,661,532 ============ =========== ======= =============

PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 Securities available-for-sale of $53,350,436 and $70,236,750 at December 31, 2002 and December 31, 2001, respectively, were pledged to secure a borrowing line of credit and for other purposes as required or permitted by law. (4) LOANS AND ALLOWANCE FOR LOAN LOSSES Total loans at December 31, 2002 and 2001 consisted of the following:

2002 2001 ------------ ------------ Commercial and industrial $125,864,751 $110,656,394 Installment loans, net 21,223,988 14,527,139 Real estate loans 434,072,716 368,729,336 Home equity 6,018,120 4,725,871 Bills bought 6,616,931 9,399,358 Trade finance 12,488,147 7,990,175 SBA loans 74,560,313 53,387,876 Other 3,618,998 3,961,099 ------------ ------------ $684,463,964 $573,377,248 Less deferred loan fees (1,332,773) (1,023,188) ------------ ------------ Total loans $683,131,191 $572,354,060 ============ ============

Substantially all of the Bank's lending activity is with customers located in Southern California. The Bank concentrates its lending in commercial, installment and real estate loans generally collateralized with real estate properties in Southern California. Loans are generally expected to be paid off from the operating profit of the borrower or by refinancing through third parties. The majority of the commercial and real estate loans are made to small businesses. The loans are not concentrated in any specific industry. Bills bought transactions primarily consist of credit lines extended to banks in South Korea. These represent short-term acceptances drawn under normal commercial letters of credit transactions. The Bank services Small Business Administration (SBA) loans for investors which are not included in the accompanying financial statements. The total balance of SBA loans serviced for others by the Bank was approximately $9,151,000 and $137,000 as of December 31, 2002 and 2001, respectively. Loans on which the accrual of interest has been discontinued amounted to $1,998,000 and $5,021,000 at December 31, 2002 and 2001, respectively. If interest on these loans had been accrued, interest income would have increased by approximately $41,000 in 2002 and $72,000 in 2001. Loans 90 days or more past due as to interest and/or principal which are not on nonaccrual status approximated $28,000 and $39,000 at December 31, 2002 and 2001, respectively. Restructured loans where the terms have been altered to provide a reduced repayment schedule amounted to zero at December 31, 2002 and 2001. Total recorded investment in impaired loans was $2,551,000 and $5,369,000 with a related impairment allowance of $371,000 and $720,000 at December 31, 2002 and 2001, respectively. During the years ended December 31, 2002, 2001 and 2000, respectively, the Bank's average investment in impaired loans was $7,248,000, $3,645,000 and $1,259,000. Interest income of $129,000, $138,000 and $106,000 would have been recorded during the years ended December 31, 2002, 2001 and 2000, respectively, had the loans not been considered impaired. The Bank has no commitments to lend additional funds to debtors whose terms have been modified in a troubled debt restructuring. PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 Changes in the allowance for loan losses are summarized as follows:

2002 2001 2000 ----------- ----------- ----------- Balance at beginning of year $ 9,467,490 $ 8,894,927 $ 8,350,870 Provision charged to operating expense 1,100,000 1,300,000 1,300,000 Loans charged off (1,804,983) (1,307,962) (1,187,792) Recoveries on loans previously charged off 110,488 580,525 431,849 ----------- ----------- ----------- Net loan charge offs (1,694,495) (727,437) (755,943) ----------- ----------- ----------- Balance at end of year $ 8,872,995 $ 9,467,490 $ 8,894,927 =========== =========== ===========

(5) BANK PREMISES AND EQUIPMENT Bank premises and equipment at December 31, 2002 and 2001 consisted of:

2002 2001 ------------ ------------ Land $ 1,511,425 $ 2,969,629 Building 5,303,227 7,613,835 Equipment and furnishings 8,141,377 7,626,518 Leasehold improvements 4,561,162 4,443,667 ------------ ------------ 19,517,191 22,653,649 Less accumulated depreciation and amortization (12,907,049) (13,315,182) ------------ ------------ Net premises and equipment $ 6,610,142 $ 9,338,467 ============ ============

Depreciation and amortization expense for the years ended December 31, 2002, 2001 and 2000 amounted to $1,346,077, $1,358,581 and $1,267,565, respectively. (6) OTHER REAL ESTATE OWNED For the years ended December 31, 2002, 2001 and 2000, net other real estate owned (income) expense was comprised of the following:

2002 2001 2000 --------- --------- --------- Net gain on sale of other real estate owned $ -- $(115,460) $(362,473) Direct holding costs, net 41 1,752 5,247 --------- --------- --------- Net other real estate owned (income) expense $ 41 $(113,708) $(357,226) ========= ========= =========

PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001 (7) DEPOSITS Time deposits by maturity dates are as follows at December 31,

2002 2001 ------------ ------------ Less than three months $197,403,240 $221,804,864 After three months to six months 78,887,240 64,774,151 After six months to twelve months 70,081,859 52,366,695 After twelve months 12,157,077 11,917,043 ------------ ------------ Total time deposits $358,529,416 $350,862,753 ============ ============

A summary of interest expenses on deposits is as follows for the years ended December 31, 2002, 2001 and 2000.

2002 2001 2000 ----------- ----------- ----------- Demand - interest bearing $ 38,953 $ 58,721 $ 89,458 Savings and money market 2,515,999 3,308,177 3,941,294 Time certificates of deposit: Less than $100,000 3,179,952 5,015,274 4,948,032 $100,000 or more 6,412,516 13,820,403 10,590,668 Other borrowings 1,163,409 907 556,578 ----------- ----------- ----------- Total interest expense $13,310,829 $22,203,482 $20,126,030 =========== =========== ===========

(8) INCOME TAXES The provision for income taxes includes the following:

DECEMBER 31 ----------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Current: Federal $ 5,465,500 $ 6,580,000 $ 6,913,000 State 2,993,500 611,000 295,000 ----------- ----------- ----------- 8,459,000 7,191,000 7,208,000 ----------- ----------- ----------- Deferred: Federal (22,000) (480,000) (365,000) State (439,000) (186,000) 26,000 ----------- ----------- ----------- (461,000) (666,000) (339,000) ----------- ----------- ----------- Total: Federal 5,443,500 6,100,000 6,548,000 State 2,554,500 425,000 321,000 Change in valuation allowance for deferred tax assets (594,000) 186,000 (25,500) ----------- ----------- ----------- Total income tax expense $ 7,404,000 $ 6,711,000 $ 6,843,500 =========== =========== ===========

Applicable income tax expense in 2002, 2001 and 2000 resulted in effective tax rates of 38.86%, 36.71% and 36.03%, respectively, of income before income taxes. The primary reasons for the differences from the federal statutory tax rate of 35% in 2002, 2001 and 2000 are as follows: PACIFIC UNION BANK Notes to Financial Statements December 31, 2002 and 2001

2002 2001 2000 ----------- ----------- ----------- Income tax expense at federal statutory rate $ 6,669,000 $ 6,399,000 $ 6,648,000 State franchise taxes, net of federal income tax benefit 1,660,000 276,000 208,000 Valuation allowance (594,000) 186,000 (25,500) Other, net (331,000) (150,000) 13,000 ----------- ----------- ----------- $ 7,404,000 $ 6,711,000 $ 6,843,500 =========== =========== ===========

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2002 and 2001 are presented below:

2002 2001 ----------- ----------- Deferred tax assets: Loans principally due to allowance for loan losses $ 3,897,000 $ 3,723,000 Unrealized loss on securities available-for-sale -- -- Bank premises and equipment principally due to differences in depreciation 125,000 423,000 Federal deduction or state tax 1,079,000 485,000 Other 64,646 73,646 ----------- ----------- Total gross deferred tax assets 5,165,646 4,704,646 Less valuation allowance -- (594,000) ----------- ----------- Net deferred tax assets 5,165,646 4,110,646 ----------- ----------- Deferred tax liabilities: Net unrealized gain on securities available-for-sale (502,600) (792,116) ----------- ----------- Net deferred tax assets, net $ 4,663,046 $ 3,318,530 =========== ===========

In assessing the realizability 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. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Bank has concluded that a valuation allowance against the deferred tax asset is not required. (9) STOCK OPTIONS The Bank adopted a stock option plan in 2000, under which options may be granted to key employees and directors of the Bank. The option price may not be less than the fair value of the Bank's stock on the effective date of the grant. The Bank authorized a total of 586,000 options under the plan as of December 31, 2000. These options will vest over five to ten years and may be exercised over five to ten year period. The number and price per share of outstanding options has been adjusted to reflect the stock dividend of March 28, 2002 (See note 15). Activity in the stock option plan for the years ended December 31, 2002 and 2001 follows:

2002 2001 ---- ---- WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- -------------- --------- ----------------- Options outstanding, beginning of year 263,560 $ 8.91 259,400 $ 8.02 Options granted 117,500 $ 17.38 52,300 $ 11.04 Options exercised (14,996) $ 6.37 (8,184) $ 7.14 Options expired / canceled (79,789) $ 7.08 (68,486) $ 7.33 Stock dividend 25,964 $ 8.30 28,530 $ 8.78 ------- -------- -------- -------- Options outstanding, end of year 312,239 $ 11.15 263,560 $ 8.91 ======= ======== ======== ========

The Bank applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its Plan. Accordingly, no compensation costs have been recognized for its stock option plan in the financial statements. The weighted average fair value of options granted was $2.53 and $2.06 per share in 2002 and 2001, respectively. The weighted average fair value of options was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: no dividend yield, expected volatility of 62% and 36% in 2002 and 2001, respectively, risk-free interest rate of 4.21% and 4.78% in 2002 and 2001, respectively and expected lives of five to ten years in 2002 and 2001. Information pertaining to stock options outstanding at December 31, 2002 is as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- ----------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE ----------- ---------------- -------- ----------- -------- $6.37 - 7.56 141,580 4.71 years 6.68 53,313 6.56 $9.46 - 17.38 170,659 4.97 years 14.85 19,502 9.88 ------- ------ Outstanding at end of year 312,239 4.85 years 11.15 72,815 7.44 ======= ======

Had compensation cost for the Bank's stock option plan been determined based on the fair values at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, the Bank's net income and earnings per share for the years ended December 31, 2002 and 2001 would have been reduced to the pro forma indicated below.

2002 2001 2000 -------------- ------------- ------------- Net Income: As reported $ 11,651,378 11,571,898 12,150,981 Pro-forma 11,599,887 11,521,958 12,126,466 Earnings per share: As reported: Basic $ 1.10 1.09 1.32 Diluted 1.09 1.08 1.32 Pro-forma: Basic $ 1.09 1.09 1.32 Diluted 1.08 1.08 1.32

(10) EMPLOYEE BENEFIT PLANS The Bank has a 401(k) profit sharing plan. This plan is for the benefit of substantially all of its employees. The Bank contributed 4.3% of each participant's annual compensation in 2002, 2001 and 2000. Contributions for the years ended December 31, 2002, 2001 and 2000 were approximately $262,000, $285,000 and $247,000 respectively. (11) COMMITMENTS AND CONTINGENT LIABILITIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK There are various legal proceedings pending against the Bank. In the opinion of management, based upon the advice of counsel, liabilities arising from these proceedings, if any, will not materially affect the financial position of the Bank. The Bank leases premises for eight of its branches and head office under lease agreements that contain renewal options and escalation clauses which provide for the payment of taxes, insurance and certain other expenses by the Bank. Included in net occupancy expense and equipment expense are rental payments for premises and equipment of $1,697,147 in 2002, $1,629,571 in 2001 and $1,723,267 in 2000. The following is a schedule by years of future minimum rental commitments, primarily representing noncancelable operating leases and a noncancelable sublease as of December 31, 2002:

MINIMUM SUBLEASE RENTAL RENTALS INCOME ----------- --------------- Year ending December 31: 2003 $ 1,645,609 $ 218,832 2004 1,626,082 218,832 2005 1,415,920 -- 2006 1,207,483 -- 2007 1,186,515 -- Later years 1,066,956 -- ----------- ------------ $ 8,148,565 $ 437,664 =========== ============

The Bank 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 in the form of loans or through standby letters of credit. Those instruments involve varying degrees and elements of credit risk in excess of the amount recognized in the balance sheet. The dollar amount related to such commitments reflects the extent of involvement the Bank has in particular classes of financial instruments. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk. Commitments to extend credit whose contract amounts represent the amount of credit risk include the following at December 31, 2002 and 2001:

2002 2001 ------------------------- ------------------------- OUTSTANDING GUARANTEED OUTSTANDING GUARANTEED AMOUNT AMOUNT AMOUNT AMOUNT ----------- ----------- ----------- ----------- Commitments to extend credit: Commercial loans $92,454,540 $ -- $33,810,704 $ -- Home equity line of credit 4,325,374 -- 4,409,023 -- Credit card loans and others 6,623,348 -- 6,851,421 -- Standby letters of credit 19,575,312 19,575,312 12,096,276 12,096,276 Commercial letters of credit 5,404,357 -- 5,547,866 --

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 Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation of the borrower. The commitments can be either secured or unsecured and may also take the form of standby letters of credit and commercial letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank 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. (12) TRANSACTIONS WITH AFFILIATES The Bank had the following assets and liabilities at December 31 resulting from transactions with Korea Exchange Bank.

2002 2001 ----------- ----------- Due from banks - demand $ 264,633 $ 777,718 ----------- ----------- Demand deposits, non-interest bearing $ 3,515,539 $ 2,445,054 ----------- -----------

At December 31, 2002 and 2001, loans to certain directors and officers amounted approximately $55,000 and $85,000, respectively. One director has a line of credit of zero and $1 million with the Bank with no outstanding amount at December 31, 2002 and 2001, respectively. (13) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. (a) CASH AND SHORT-TERM INSTRUMENTS For those short-term instruments whose maturity is less than 90 days, the carrying amount is assumed to be a reasonable estimate of fair value. (b) FEDERAL HOME LOAN BANK STOCK The carrying amount is assumed to be a reasonable estimate of fair value. (c) SECURITIES Fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. (d) LOANS Fair value is estimated for portfolios of loans with similar financial characteristics. Each loan portfolio was further segmented into fixed and adjustable rate interest groups and by performing and nonperforming categories. The fair value of performing loans was calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Fair value for nonperforming loans was based on recent external appraisals and related estimated cash flows discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. (e) DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. (f) OTHER BORROWED FUNDS Due to the short-term nature of these borrowings, the carrying amount is assumed to be a reasonable estimate of fair value. (g) COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND COMMERCIAL LETTERS OF CREDIT The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The uncertainty involving the attempt to determine the likelihood and the timing of a commitment being drawn upon, along with the lack of established markets, would not result in what the Bank believes to be a meaningful estimate of fair value. The fair value disclosed hereinafter does not reflect any premium or discount that could 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 in amounts disclosed. The fair value estimates are dependent upon subjective estimates of market conditions and perceived risks of financial instruments at a point in time and involve significant uncertainties resulting in variability in estimates with changes in assumptions. The estimated fair value of the Bank's financial instruments at December 31, 2002 and 2001 is as follows (dollars in thousands):

2002 2001 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- ---------- --------- ---------- Financial assets: Cash and short-term instruments $ 86,765 $ 86,765 $ 68,074 $ 68,074 Federal home loan bank stock 3,538 3,538 1,504 1,504 Securities held-to-maturity 89,314 90,799 -- -- Securities available-for-sale 64,701 64,701 139,662 139,662 Loans, net 674,258 684,215 562,887 568,289 Accrued interest receivable 3,405 3,405 3,455 3,455 Financial liabilities: Deposits 759,996 748,929 692,752 693,967 Other borrowed funds 70,000 72,906 -- -- Accrued interest payable 3,140 3,140 4,684 4,684

(14) REGULATORY MATTERS (a) CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes as of December 31, 2002 that the Bank meets all capital adequacy requirements to which it is subject. The Bank is no longer considered as well capitalized as a result of Consent Agreement made with Federal Deposit Insurance Corporation (see other below). To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table and not be subject to any regulatory order, agreement or directive. The Bank's actual capital amounts and ratios as of December 31, 2002 and 2001 are as follows (dollars in thousands):

2002 - ----------------------------------------------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS -------------------- ------------------------ ------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ---------- ------ --------- ----------- --------- ------------ Total capital (to risk- weighted assets) $ 108,689 15.95% $ 54,515 > or = 8.0% $ 68,144 > or = 10.0% Tier I capital (to risk- weighted assets) 100,169 14.70 27,257 > or = 4.0 40,885 > or = 6.0 Tier I capital (to average assets) 100,169 11.56 34,671 > or = 4.0 43,338 > or = 5.0 ========== ===== ========= ========== ========= ==========

2001 --------------------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS -------------------- ------------------------ ------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ---------- ------ --------- ----------- --------- ------------ Total capital (to risk- weighted assets) $ 95,864 16.07% $ 47,723 > or = 8.0% $ 59,654 > or = 10.0% Tier I capital (to risk- weighted assets) 88,384 14.82 23,855 > or = 4.0 35,783 > or = 6.0 Tier I capital (to average assets) 88,384 10.77 32,813 > or = 4.0 41,016 > or = 5.0 ========== ===== ========= ========== ========= ==========

(b) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was signed into law on December 19, 1991. FDICIA establishes a new framework for the relationship between insured depository institutions and their regulators. FDICIA requires insured depository institutions to maintain capital ratio thresholds. Regulators are required to take prompt corrective actions to resolve the problems of any institution failing to meet these minimum ratios. In addition to the prompt corrective action requirements, FDICIA includes significant changes to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervisions by the federal regulatory agencies, increased reporting requirements for insured institutions and new regulations concerning internal controls, accounting and operations. (c) OTHER The Bank also is currently subject to a Consent Order issued by the FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(1) and which became effective on April 14, 2002. The FDIC issued the ConsenT Order as provided by the Consent Agreement that the Bank entered into with the FDIC. The Consent Order requires the Bank to take specific actions necessary to correct certain Bank Secrecy Act compliance deficiencies including inadequate training, internal controls and ineffective independent testing of such controls. Even before the Consent Order became effective, the Bank began taking proactive steps in 2001 to improve its BSA compliance. For example, in late 2001, the Bank implemented an enterprise-wide risk management infrastructure, which includes a comprehensive compliance program and training. This step was taken with the assistance of a leading financial services consulting firm, The Secura Group, whom the Bank retained in November 2001 to advise and assist the Bank in its compliance efforts. In addition, the Bank created a new senior executive position of Chief Risk Officer and hired the CRO in May 2002 to enhance overall Risk Management processes. Finally, to improve the overall efficiency and effectiveness of BSA monitoring, the Bank purchased a new automated BSA tracking/monitoring system which was installed in 2002 and is in the process of implementation. The Bank expects this system to be fully functional shortly, which will satisfy one of the most critical requirements of the Consent Order. (15) EARNINGS PER SHARE The following earnings per share as of December 31, 2002, 2001 and 2000 has been restated for the 12% stock dividend in 2002 and 10% stock dividend in 2001.

INCOME SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT - ------------------------------------------- ---------------- ------------- --------- Basic EPS - Income available to common stockholders $ 11,651,378 10,616,017 $ 1.10 Effect of Dilutive Securities - Options -- 86,075 (0.01) ---------------- ------------- --------- Diluted EPS - Income available to common stockholders $ 11,651,378 10,702,092 $ 1.09 ================ ============= =========

INCOME SHARES PER SHARE 2001 (NUMERATOR) (DENOMINATOR) AMOUNT - ------------------------------------------- ---------------- ------------- --------- Basic EPS - Income available to common stockholders $ 11,571,898 10,600,306 $ 1.09 Effect of Dilutive Securities - Options -- 95,000 (0.01) ---------------- ------------- --------- Diluted EPS - Income available to common stockholders $ 11,571,898 10,695,306 $ 1.08 ================ ============= =========

INCOME SHARES PER SHARE 2000 (NUMERATOR) (DENOMINATOR) AMOUNT - ------------------------------------------- ---------------- ------------- --------- Basic EPS - Income available to common stockholders $ 12,150,981 9,180,807 $ 1.32 Effect of Dilutive Securities - Options -- 7,684 -- ---------------- ------------- --------- Diluted EPS - Income available to common stockholders $ 12,150,981 9,188,491 $ 1.32 ================ ============= =========

(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized unaudited quarterly financial data follows:

THREE MONTHS ENDED ------------------------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 --------------- --------------- --------------- --------------- (In thousands, except share amounts) 2002 Interest income $ 10,872 $ 10,982 $ 12,056 $ 12,468 Net interest income 7,914 8,076 8,329 8,748 Provision for losses on loans 100 100 200 700 Net income before income taxes 4,299 5,326 4,128 5,302 Net income 2,581 3,198 2,637 3,235 Basic earnings per common share 0.24 0.30 0.25 0.30 Diluted earnings per share 0.24 0.30 0.25 0.30 2001 Interest income $ 14,678 $ 14,591 $ 13,924 $ 12,083 Net interest income 8,215 8,136 8,643 8,079 Provision for losses on loans 100 250 600 350 Net income before income taxes 5,289 4,607 4,646 3,741 Net income 3,230 2,762 3,061 2,519 Basic earnings per common share 0.34 0.29 0.32 0.27 Diluted earnings per share 0.34 0.29 0.32 0.26

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE At its Board of Directors meeting on March 28, 2002, the Board of Directors terminated the services of KPMG LLP ("KPMG"). At the same meeting, the Board of Directors selected the accounting firm of PriceWaterhouseCoopers LLP("PwC") as independent auditors for the remainder of the Bank's 2002 fiscal year. The determination to replace KPMG was recommended by the audit committee and approved by the full board of directors of the Bank. KPMG audited the consolidated financial statements for the Bank for the years ended December 31, 2001 and 2000. KPMG's report on the financial statements for the last two fiscal years of the Bank did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During the two fiscal years ended December 31, 2001 and 2000 and the subsequent interim period January 1, 2002 through March 28, 2002, there were no disagreements with KPMG and the Bank on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its reports. The Bank filed a Report on Form 8-K concerning the change in accountants dated March 28, 2002. The Bank requested that KPMG review the disclosure in the Report on Form 8-K, and KPMG has been given the opportunity to furnish the Bank with a letter addressed to the Federal Deposit Insurance Corporation containing any new information, clarification of the Bank's expression of its views, or the respects in which it does not agree with the statements made by the Bank herein. Such letter was filed as an exhibit to the Form 8-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of March 24, 2003, with respect to (i) each of the Bank's directors and executive officers, and (ii) the directors and executive officers of the Bank as a group:

COMMON STOCK BENEFICIALLY OWNED ON MARCH 24, 2003(1) YEAR FIRST ----------------------------------------- ELECTED OR VESTED PERCENTAGE NAME AND OFFICES PRINCIPAL OCCUPATION APPOINTED NUMBER OPTION OF SHARES HELD WITH BANK FOR THE PAST FIVE YEARS AGE DIRECTOR OF SHARES SHARES(2) OUTSTANDING(3) -------------- ----------------------- --- -------- --------- --------- -------------- Allan E. Dalshaug Retired 71 1999 26,985 4,928 * Chairman of the Board (formerly Banker)(4) (Chairman since 2000) Woon Seok Hyun President and 56 1997(7) 0 7,392 * President, Chief Executive Officer, Chief Executive Officer Pacific Union Bank(6) and Director(5) Yoon Soo Kim Executive Vice President 55 2000 0 4,928 * Director and Managing Director, Korea Exchange Bank, Regional Headquarters for the Americas(8) Yong Koo Kim General Manager, 49 2002 0 0 * Director Korea Exchange Bank, Los Angeles Agency(9) Oh Hoon Kwon Senior Vice President 45 2002 0 0 * Senior Vice President, and Chief Operating Officer, Chief Operating Officer Pacific Union Bank(10) and Director

- ---------------------------- * Less than one percent (1%). (1) Except as otherwise noted, may include shares held by such person's spouse (except where legally separated) and minor children, and by any other relative of such person who has the same home; shares held in "street name" for the benefit of such person; shares held by a family or retirement trust as to which such person is a trustee and primary beneficiary with sole voting and investment power (or shared power with a spouse); or shares held in an Individual Retirement Account or pension plan as to which such person (and/or his spouse) is the sole beneficiary and has pass-through voting rights and investment power. (2) Represents option shares which are vested or will vest within 60 days of March 24, 2003 pursuant to the Bank's Stock Option Plan. (See "Stock Options" and "Compensation of Directors" herein.) (3) This percentage is based on the total number of shares of the Bank's Common Stock outstanding, plus the number of option shares for the applicable individual or group which are vested or will vest within 60 days of March 24, 2003 pursuant to the Bank's Stock Option Plan. (See "Stock Options" and "Compensation of Directors" herein.) (4) Mr. Dalshaug retired in July 1998 and most recently served as Chairman of the Board and Chief Executive Officer of Sterling Bank in Los Angeles, a specialist commercial bank of which he was also a founding director and promoter, from 1980 until its sale in 1998. (5) Mr. Hyun has announced his intention to resign as President, Chief Executive Officer and a Director effective May 22, 2003. (6) Mr. Hyun has served as President and Chief Executive Officer of the Bank since May 15, 2001. Previously, he served as Executive Vice President of KEB's Regional Headquarters for Japan and General Manager of KEB's Tokyo branch since January 2000; and as General Manager of KEB's Los Angeles Agency from February 1997 to March 1999. (7) Mr. Hyun served as a director of the Bank from March 1997 to April 1999, and has served as a director again since May 2001. (8) Dr. Yoon Soo Kim has held this position with KEB since September 2000. Previously, he served as Managing Director of KEB's Treasury Unit from May to September 2000; as General Manager of KEB's International Banking Division from March 1999 to May 2000; and as General Manager of KEB's Capital Market Division from January 1998 to March 1999. (9) Mr. Yong Koo Kim has served as General Manager of KEB's Los Angeles Agency since March 12, 2002. Previously, he served in various capacities at KEB since 1978, including General Manager of the Do Gok Ro Branch From August 1999 to February 2002; as Deputy General Manager, Planning and Coordination Division from September 1998 to August 1999; and as Deputy General Manager, Loan Division from January 1998 to September 1998. (10) Mr. Kwon has served as Senior Vice President, Chief Operating Officer and a director of the Bank since March 15, 2002. Previously, he served in various capacities at KEB since 1981, including most recently as Deputy General Manager in charge of administration of overseas offices for KEB's International Banking Division since February 2000; as General Manager for Retail Banking at the Chamsil Station Branch from March 1999 to February 2000; and as Manager, Secretariat from February 1997 to March 1999. (Table and footnotes continued on following page.)

COMMON STOCK BENEFICIALLY OWNED ON MARCH 24, 2003(1) YEAR FIRST ------------------------------------ ELECTED OR VESTED PERCENTAGE NAME AND OFFICES PRINCIPAL OCCUPATION APPOINTED NUMBER OPTION OF SHARES HELD WITH BANK FOR THE PAST FIVE YEARS AGE DIRECTOR OF SHARES SHARES(2) OUTSTANDING(3) -------------- ------------------------------- --- -------- --------- --------- -------------- Donald D. Byun President, OTO Sportswear, Inc. 51 2000 61,600 4,928 * Director (Manufacturing and Import Company) Sun Kee Kim Professor of Economics 69 2002 0 0 * Director and Statistics, California State University, Los Angeles Kraig A. Kupiec Managing Member, 38 2000 0 4,928 * Director Finance Operations, Shoreline Trading Group LLC (Securities Broker-Dealer)(11) David B. Warner Financial Advisor(13) 56 2002 0 0 * Director(12) Dianne Kim Senior Vice President 41 n/a 3,903 1,626 * Senior Vice President and Chief Financial Officer, and Chief Financial Officer Pacific Union Bank(14) Dong Il Kim Senior Vice President 49 n/a 616 1,626 * Senior Vice President and Chief Credit Officer, and Chief Credit Officer Pacific Union Bank(15) Owen C. Clayburgh Senior Vice President 38 n/a 0 0 * Senior Vice President and Chief Risk Officer, and Chief Risk Officer Pacific Union Bank(16) Directors and 98,032 35,284 * Executive Officers as a Group (13 persons) (17)

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely upon a review of Forms F-7, F-8 and F-8A and amendments thereto furnished to the Bank during and with respect to its 2002 fiscal year, no director, executive officer or beneficial owner of 10% or more of the Bank's Common Stock failed to file, on a timely basis, reports required for 2002 by Section 16(a) of the Securities Exchange Act of 1934, as amended, except Mr. Dalshaug, who inadvertently failed to timely file a Form F-8 with respect to two small transactions in April 2002. - ----------------- (Certain footnotes appear on previous page.) (11) Mr. Kupiec also serves as Financial Officer of KWK Management LLC, a California registered Investment Advisor located in Los Angeles. (12) Mr. Warner has been selected by the Board of Directors to serve as Interim Chief Executive Officer effective May 22, 2003, subject to non-disapproval by the FDIC. (13) Mr. Warner has been a self-employed financial advisor consulting with various entities since October 2001. Previously, he served as Deputy President and Chief Financial Officer of Seoul Bank in Seoul, Korea from July 2000 to September 2001; as Advisor/Director of the Korea Development Bank from December 1998 to June 2000; and as Senior Vice President for ChinaVest Limited in Hong Kong from 1994 to July 1998. (14) Ms. Kim was appointed Senior Vice President and Chief Financial Officer of the Bank in May 2000. From 1996 until May 2000, she served as Vice President and Controller of Cathay Bank in Los Angeles. (15) Mr. Dong Il Kim was appointed Senior Vice President and Chief Credit Officer of the Bank in November 2000. Previously, he served as Senior Vice President, Senior Loan Officer and Manager of the Bank's Special Assets Department from August 2000 to November 2000; as Senior Vice President and Senior Loan Officer from May 2000 to July 2000; as Vice President and Senior Loan Officer from January 2000 to May 2000; as Vice President and Manager of the Bank's Olympic Branch from 1997 to January 2000. (16) Mr. Clayburgh was appointed Senior Vice President and Chief Risk Officer of the Bank in May 2002. Previously, he served as Vice President and Risk Manager of Pacific Century Bank in Signal Hill, California from September 2001 to December 2001; and as First Vice President and Risk Manager of that bank from May 1998 to September 2001. (17) Includes one director who resigned on April 17, 2003. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain summary compensation information with respect to the Bank's Chief Executive Officer and only other executive officers of the Bank as of December 31, 2002, whose total salary and bonus for the fiscal year ended December 31, 2002, exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION ------------ STOCK OPTIONS ANNUAL COMPENSATION GRANTED ------------------------------------- (NUMBER ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OF SHARES)(18) COMPENSATION(19) - --------------------------- ---- ------ ----- ----- -------------- ---------------- Woon Seok Hyun 2002 $149,852 (20) $ 0 $44,250(22) 0 $2,329 President and 2001 82,967 (21) 0 25,375(22) 36,966 0 Chief Executive Officer(5) Dianne Kim 2002 113,515 (20) 14,533(24) 0 2,200 5,297 Senior Vice President 2001 109,144 (20) 14,050 0 0 1,756 and Chief Financial Officer 2000 66,657 (23) 15,000 0 4,066 0 Dong Il Kim 2002 101,070 (20) 13,458(24) 0 2,200 4,662 Senior Vice President 2001 96,118 (20) 12,300 0 0 3,958 and Chief Credit Officer 2000 80,708 (20) 11,350 0 4,066 3,576

STOCK OPTION PLAN The Bank's 2000 Stock Option Plan (the "Plan"), intended to advance the interests of the Bank by encouraging stock ownership on the part of key employees, was adopted by the Bank's then sole shareholder on May 12, 2000. The Plan provides for the issuance of both "incentive" and "non-qualified" stock options to full-time salaried officers and employees of the Bank and of "non-qualified" stock options to non-employee directors of the Bank. All options are granted at an exercise price of not less than 100% of the fair market value of the stock on the date of grant.25 Each option expires not later than ten (10) years from the date the option was granted. Options are exercisable in installments as provided in individual stock option agreements; provided, however, that if an optionee fails to exercise his or her rights under the options within the year such rights arise, the optionee may accumulate them and exercise the same at any time thereafter during the term of the option. In addition, in the event of a "Terminating Event," i.e., a merger or consolidation of the Bank as a result of which the Bank will not be the surviving corporation, a sale of substantially all of the Bank's assets, or a change in ownership of at least 25% of the Bank's stock, all outstanding options under the Plan shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time, unless provision is made in connection with the Terminating Event for assumption of such options, or substitution of new options covering stock of a successor corporation. As of December 31, 2002, the Bank had options - ------------------------ (Certain footnotes appear on page 64.) (18) As adjusted to reflect stock splits or dividends declared since the grant date of options (if applicable). (19) Consists entirely of employer contributions to these individuals' accounts pursuant to the Bank's 401(k) Plan. The 401(k) Plan permits all participants to contribute up to 15% or $30,000 of their annual salary (whichever is less) on a pre-tax basis, which contributions vest immediately when made. Employer contributions are made in the amount of 4.3% of annual compensation, up to a maximum of $6,450, and become vested over a period of six years at the rate of 20% per year for third and fourth years of service, and 30% per year for the fifth and sixth years of service. (20) Includes portions of these individuals' salaries which were deferred pursuant to the Bank's 401(k) Plan. (21) Represents salary paid from May 15, 2001 (commencement of Mr. Hyun's employment) through December 31, 2001. (22) Consists of the reported taxable value of the use of both a Bank-owned automobile ($8,250 and $2,875 in 2002 and 2001, respectively) and a personal residence ($36,000 and $22,500 in 2002 and 2001, respectively). (23) Represents salary paid from May 15, 2000 (commencement of Ms. Kim's employment) through December 31, 2000. (24) Consists of bonuses paid in 2003 based on 2002 performance. (25) Exercise price per share is equivalent to market price per share on the date of grant, as determined by the Board of Directors of the Bank, based upon trades in the Bank's Common Stock known to the Bank and opening and closing prices quoted on the Nasdaq National Market concerning the Bank's Common Stock. outstanding to purchase a total of 312,239 shares(18) of its Common Stock under the Plan, with an average exercise price of $10.83 per share(18) with respect to all such options. As of that same date, the fair market value of the Bank's common stock was $11.51 per share. The following table furnishes certain information regarding stock options granted to the Named Executive Officers during 2002:

PERCENT OF TOTAL OPTIONS GRANTED TO NUMBER OF EMPLOYEES DURING EXERCISE OR EXPIRATION FAIR NAME OPTIONS GRANTED PERIOD BASE PRICE DATE VALUE(26) ---- --------------- ------ ---------- ---- --------- Woon Seok Hyun 0 n/a n/a n/a n/a Dianne Kim 2,200(27) 1.80% $17.38 9/28/07 $7,128 Dong Il Kim 2,200(27) 1.80% 17.38 9/28/07 7,128

No options were exercised by the Named Executive Officers during 2002. The following information is furnished with respect to stock options held by the Named Executive Officers at December 31, 2002:

NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT DECEMBER 31, 2002(28) AT DECEMBER 31, 2002(29) -------------------- -------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Woon Seok Hyun 7,392 29,568 $9,942 $39,771 Dianne Kim 1,626 4,640 8,193 23,380 Dong Il Kim 1,626 4,640 8,193 23,380

COMPENSATION OF DIRECTORS Directors of the Bank who are not employees of either the Bank or KEB ("outside directors") received $1,500 per month, and the Chairman received $2,500 per month, for their service on the Board of Directors during 2002, plus $700 for attendance at the organizational meeting of the Board of Directors. These outside directors also received a year-end bonus amounting to one extra month of their regular fees. Such directors also received $500 per meeting for attendance at Loan Committee meetings ($250 if by teleconference), and $300 per meeting for Audit, Compensation, CRA, Executive and Strategic Committee meetings ($150 if by teleconference), except for the Chairman of the Audit and Strategic Committees who received $500 per Audit and Strategic Committee meeting ($250 if by teleconference). In addition, during 2002 the Bank paid a total of $26,275 to Allan E. Dalshaug, Chairman of the Board, on an hourly compensation basis, for assisting management in constructing a strategic plan. During 2002 directors Sun Kee Kim, Yong Koo Kim and David B. Warner were each granted a stock option to purchase 10,000 shares of common stock, and Oh Hoon Kwon was granted a stock option to purchase 15,000 shares of common stock, all at exercise prices of $17.38 per share, expiring in June 2012. All of such options become exercisable at the rate of 20% per year commencing one year from the date of grant. No stock options were exercised by any current directors during 2002. As of December 31, 2002 directors Sun Kee Kim, Yong Koo Kim, Oh Hoon Kwon and David B. Warner held the outstanding options described in the first sentence of this paragraph, none of which were exercisable; and directors Allan E. Dalshaug, Donald D. Byun, Kraig A. Kupiec, and Yoon Soo Kim held outstanding stock options to purchase 12,320 shares(28) each of Common Stock, all with expiration dates in 2010, at exercise prices of $7.56 per share(28) ($6.37 per share(28) in the case of Mr. Dalshaug). As of that same date, the fair market value of the Bank's Common Stock was $11.51 per share. As of December 31, 2002, all of the options to the four directors described in the preceding sentence were exercisable as to forty percent (40%) of such shares. Information concerning stock options held by directors who are also Named Executive Officers is set forth above under "Stock Options." - ------------------------- (26) The fair value of options was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: no dividend yield, expected volatility of 62%, risk-free interest rate of 4.21% and expected life of five years. (27) These options vest at the rate of 20% per year commencing one year from the date of grant. (28) As adjusted to reflect any stock splits or dividends declared since the grant date of options (if applicable). (29) Represents the excess of the aggregate fair market value over the aggregate exercise price of the shares at December 31, 2002. PERFORMANCE GRAPH The graph on the following page compares the yearly percentage change in the cumulative total shareholders' return on the Bank's stock with the cumulative total return of (i) the Nasdaq market index and (ii) an index comprised of banks and bank holding companies located throughout the United States with total assets of between $500 million and $1 billion. The latter peer - -group index was compiled by SNL Securities LP of Charlottesville, Virginia. The Bank reasonably believes that the members of the second group listed above constitute peer issuers for the period from August 1, 2000 (conclusion of the Bank's initial public offering) through December 31, 2002. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is not necessarily indicative of future price performance. TOTAL RETURN PERFORMANCE [TOTAL RETURN PERFORMANCE GRAPH]

PERIOD ENDING ---------------------------------------------------------------------- INDEX 08/01/00 12/31/00 06/30/01 12/31/01 06/30/02 12/31/02 ----- -------- -------- -------- -------- -------- -------- Pacific Union Bank 100.00 124.19 170.32 149.03 277.88 182.97 NASDAQ - Total US* 100.00 66.65 58.62 52.88 39.94 36.55 SNL $500M-$1B Bank Index 100.00 107.25 132.80 139.14 178.57 177.65

* Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago 2003. Used with permission. All rights reserved. BOARD OF DIRECTORS' COMPENSATION COMMITTEE REPORT The Board of Directors' Compensation Committee is responsible for administering the compensation program for the Senior Executive Officers of the Bank (Chief Executive Officer, Executive Vice President, Chief Operating Officer, Chief Financial Officer, Chief Credit Officer, and Chief Risk Officer). The Committee also serves as the Stock Option Committee, administering the 2000 Stock Option Plan for participants who are neither directors nor executive officers. The Compensation Committee reviews compensation of the Senior Executive Officers of the Bank and ensures that their compensation is linked to the maximum extent practicable to the financial performance of the Bank and the achievement of goals established by the Board. The Compensation Committee (or the Board of Directors) also reviews and approves any contracts of employment for the Senior Executive Officers. The Committee is required annually, or on whatever basis it deems satisfactory, to review the performance of all Senior Executive Officers based on performance evaluations prepared by management. Such reviews take into account the Bank's profitability, growth, and asset quality. KOREA EXCHANGE BANK OFFICERS ON ASSIGNMENT WITH PACIFIC UNION BANK The Bank's majority shareholder, KEB, typically recommends highly experienced officers from its organization to serve as Pacific Union Bank's top management, on assignments of typically two to three year duration. Following the completion of their assignment, such officers (other than the CEO, who is usually a retired officer of KEB) return to KEB. Of the six Senior Executive Officers who served during 2002, three (counting the current and former Chief Operating Officer as one) are current or retired KEB officers on such assignments. In 2002, they were Woon Seok Hyun, President and Chief Executive Officer who has served from May 15, 2001 to the present; Moo Yeul Shin, Executive Vice President (who resigned as of February 15, 2002 and whose position was eliminated after his resignation); Dong Hwan Heo, Senior Vice President and Chief Operating Officer (who resigned as of March 15, 2002), and his successor, Oh Hoon Kwon, Senior Vice President and Chief Operating Officer. Under the assignment arrangement, the three KEB officers were compensated based on criteria established by KEB for its personnel in the United States. Compensation for these officers was determined by KEB. The Compensation Committee recognizes that the compensation of KEB officers on assignment with Pacific Union Bank will continue to be based on factors established by or affecting KEB. Thus, disparity may exist between their rate of compensation and those of comparable local competitive bank executive officers. OTHER SENIOR EXECUTIVE OFFICERS The Compensation Committee has reviewed compensation levels of the non-KEB Senior Executive Officers and has determined that they are competitive. Moreover, the Compensation Committee has reviewed and determined that their year-end incentive bonuses were appropriately based on their individual performances as well as the Bank's overall financial performance. As discussed previously, the Chief Executive Officer, Woon Seok Hyun is a retired Korea Exchange Bank officer who was appointed by the Board based on the recommendation of KEB. His compensation was set by KEB under criteria discussed previously. Consequently, the Board of Directors established no other factors or criteria upon which their compensation was based, and accepted the principles followed by KEB. However, the Compensation Committee did review his compensation and determined, based on comparison to executive compensation being paid by other comparable banks, that the Bank's Chief Executive Officer compensation appears to be somewhat below market. The Committee will continue to discuss with KEB ways to make the Chief Executive Officer compensation more competitive with local Chief Executive Officer compensation levels, and will continue to review short term as well as long term bench markings for Chief Executive Officer compensation. Mr. Hyun has recently announced his intention to resign as President and Chief Executive Officer effective May 22, 2003, and the Board of Directors has formed a Search Committee to locate a qualified replacement for Mr. Hyun with extensive experience in American community banking. Until the Search Committee finds Mr. Hyun's replacement, one of the independent directors, Mr. David Warner, has been selected to serve as the Interim Chief Executive Officer subject to non-disapproval by the FDIC. INCENTIVE-BASED COMPENSATION In order to (i) provide an additional incentive for the Bank's officers and employees to contribute to the Bank's success, (ii) encourage their increased stock ownership in the Bank, and (iii) enable the Bank to be competitive in the industry with respect to compensation packages, the Board of Directors adopted a Stock Option Plan in 2000. Details concerning the Stock Option Plan and options granted thereunder to the Named Executive Officers are set forth above under "Stock Options." Compensation Committee: Charles C. Kwak, Chairman (30) Allan E. Dalshaug Yoon Soo Kim COMPENSATION COMMITTEE INTERLOCKS The Compensation Committee is currently composed of three directors, none of whom is a current or former employee of the Bank or any subsidiary. However, Dr. Yoon Soo Kim is currently an officer and employee of KEB, but not of the Bank. No other members of the Committee have had any employment relationship with KEB within the past 20 years. - ------------------------ (30) Mr. Kwak resigned on April 17, 2003 and was replaced by Mr. Donald D. Byun. As the other two members of the Compensation Committee will not be standing for re-election to the Board of Directors, their replacements will be appointed at the organizational meeting of the Bank's Board of Directors (immediately following the Annual Meeting of Shareholders), at which meeting committee assignments are made every year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Management knows of no person who owns beneficially more than five percent (5%) of the outstanding Common Stock of the Bank, except for Korea Exchange Bank ("KEB") and Wellington Management Company, LLP ("Wellington"). The following table furnishes information, as of March 24, 2003, regarding these shareholders:

NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - -------------- ------------------- -------------------- -------- Common Stock Korea Exchange Bank 6,624,052 62.36% 181 Ulchiro 2-ga Chung-gu Seoul, Korea Common Stock Wellington Management Company, LLP 718,392(31) 6.76% 75 State Street Boston, Massachusetts 02109

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain of the executive officers, directors and principal shareholders of the Bank and the companies with which they are associated have been customers of, and have had banking transactions with, the Bank in the ordinary course of the Bank's business since January 1, 2002, and the Bank expects to continue to have such banking transactions in the future. All loans and commitments to lend included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar creditworthiness, and in the opinion of Management of the Bank, did not involve more than the normal risk of repayment or present any other unfavorable features. ITEM 14. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Bank's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Bank's disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a date within 90 days of the filing date of this report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Bank's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Bank and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this report was being prepared. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Changes in Internal Controls There were no significant changes in the Bank's internal controls or in other factors that could significantly affect the Bank's internal controls subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions. As a result, no corrective actions were taken. - ---------------------- (31)Represents shares reported on a Schedule 13G by Wellington, an investment adviser as defined in applicable SEC rules. Clients of Wellington have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from, the sale of the stock, but none of such clients is known to have a beneficial ownership interest in more than 5% of the Bank's Common Stock. Wellington has shared dispositive power with respect to all 718,392 shares and shared voting power with respect to 138,361 of such shares. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) EXHIBITS See Index to Exhibits on page 75 herein. The Exhibits listed in accompanying Index to Exhibits are filed as part of this report. (b) FINANCIAL STATEMENT SCHEDULES Schedules to the financial statements are omitted because the required information is applicable or the information is presented in the Bank's financial statements or related notes. (c) REPORTS ON FORM 8-K No reports on Form 8-K were filed during last quarter of the Bank's fiscal year ended December 31, 2002. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: April 17, 2003 PACIFIC UNION BANK, a California corporation By: /s/ Diane Kim ------------------------- Dianne Kim Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE /s/ Allen E. Dalshaug Chairman of the Board April 17, 2003 - ---------------------- Allan E. Dalshaug /s/ Woon Seok Hyun President, Chief Executive April 17, 2003 - ------------------- Officer and Director Woon Seok Hyun /s/ Oh Hoon Kwon Senior Vice President, Chief April 17, 2003 - ---------------- Operating Officer and Director Oh Hoon Kwon /s/ Donald Byun Director April 17, 2003 - ---------------- Donald Byun /s/ Yong Koo Kim Director April 17, 2003 - ---------------- Yong Koo Kim /s/ Yoon Soo Kim Director April 17, 2003 - ---------------- Yoon Soo Kim /s/ Kraig Kupiec Director April 17, 2003 - ---------------- Kraig Kupiec /s/ Sun Kee Kim Director April 17, 2003 - --------------- Sun Kee Kim /s/ David Warner Jr. Director April 17, 2003 - -------------------- David Warner Jr. /s/ Dianne Kim Senior Vice President April 17, 2003 - -------------- and Chief Financial Officer Dianne Kim

INDEX TO EXHIBITS

EXHIBIT TABLE EXHIBIT TABLE REFERENCE NUMBER ITEM NUMBER - ---------------- ---- ------ 3.1 Articles of Incorporation, as Amended(1)....................... 3.2 2002 Amendment to Articles of Incorporation(2)................. 3.3 Bylaws, as Amended(1).......................................... 3.4 2001 Amendment to Bylaws(3).................................... 4.1 Specimen of Common Stock Certificate(1)........................ 10.1 2000 Stock Option Plan(1)...................................... 10.2 401(k) Plan(3)................................................. 10.3 Lease for Corporate Headquarters(1)............................ 10.4 Lease for Western Branch Office(1)............................. 10.5 Lease for Wilshire Branch Office(1)............................ 10.6 Lease for Downtown Branch Office(1)............................ 10.7 Lease for Van Nuys Branch Office(1)............................ 10.8 Lease for Torrance Branch Office(1)............................ 10.9 Lease for Rowland Heights Branch Office(1)..................... 11.1 Statement Regarding Computation of Earnings Per Share(4)....... 12.1 Subsidiary of Registrant(1).................................... 99.1 Certification of Chief Executive Officer and Chief Financial Officer

- ----------------------- (1)Incorporated by reference to the Exhibits to the Bank's Form 10 Registration Statement, as filed with the FDIC on June 12, 2000. (2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed with FDIC on April 1, 2003. (3) Incorporated by reference to the Exhibits to the Bank's Form 10K/A, as filed with the FDIC on April 20, 2001. (4) The information required by this exhibit is incorporated herein by reference from Note 15 of the Bank's Financial Statements included herein. EX-99.2 4 v96038exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 ================================================================================ FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 - -------------------------------------------------------------------------------- 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, 2003 FDIC Certificate Number 21765 PACIFIC UNION BANK (Exact name of registrant as specified in its charter) CALIFORNIA 95-2888370 State or other jurisdiction of I.R.S. Employer Identification incorporation or organization Number 3530 WILSHIRE BLVD. #1800 LOS ANGELES, CALIFORNIA 90010 Address of principal executive offices Zip Code (213) 385-0909 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report): Not applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO Common stock, $6.00 par value, 10,652,452 shares outstanding as of May 9, 2003. ================================================================================ PACIFIC UNION BANK TABLE OF CONTENTS

Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets - March 31, 2003 and December 31, 2002 Statements of Operations - Three months ended March 31, 2003 and 2002 Statements of Cash Flows - Three months ended March 31, 2003 and 2002 Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Certifications

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PACIFIC UNION BANK Balance Sheets As of March 31, 2003 and December 31, 2002

(Unaudited) (Audited) MARCH 31, 2003 DECEMBER 31,2002 ---------------- ---------------- ASSETS Cash and due from banks - demand $ 30,993,172 $ 24,054,519 Federal funds sold 8,200,000 62,500,000 Due from banks - interest-bearing 230,367 210,654 Federal Home Loan Bank Stock 3,584,800 3,537,800 Securities held-to-maturity, at amortized cost (fair value of $77,403,704 at March 31, 2003 and $90,798,966 at December 31, 2002) 76,164,366 89,313,683 Securities available-for-sale, at fair value 79,489,227 64,701,421 Loans receivable 732,079,225 683,131,191 Less allowance for loan losses (9,304,331) (8,872,995) ---------------- ---------------- Net loans receivable 722,774,894 674,258,196 ---------------- ---------------- Customers' acceptance liabilities 1,147,762 657,760 Bank premises and equipment, net 6,320,172 6,610,142 Accrued interest receivable 3,280,869 3,404,574 Deferred tax assets 4,340,182 4,663,046 Income taxes receivable 1,116,038 1,116,038 Other assets 2,587,758 1,967,404 ---------------- ---------------- Total assets $ 940,229,607 $ 936,995,237 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand, non-interest-bearing $ 240,025,932 $ 223,377,195 Demand, interest-bearing 7,624,268 7,602,024 Money market and savings 146,995,051 170,486,917 Time certificates of deposit: Less than $100,000 97,375,927 99,876,831 $100,000 or more 267,719,630 258,652,585 ---------------- ---------------- Total deposits 759,740,808 759,995,552 Other borrowed funds 70,000,000 70,000,000 Acceptance liabilities 1,147,762 657,760 Accrued interest payable 3,106,403 3,140,064 Other liabilities 2,802,243 2,325,902 ---------------- ---------------- Total liabilities 836,797,216 836,119,278 ---------------- ---------------- Stockholders' equity: Common stock, $6 par value. Authorized 30,000,000 shares; issued and outstanding 10,621,554 shares at March 31, 2003 and December 31, 2002 63,724,507 63,724,507 Capital surplus 22,174,825 22,174,825 Retained earnings 17,004,601 14,283,984 Accumulated other comprehensive income - unrealized gain on securities available-for-sale - net of taxes 528,459 692,643 ---------------- ---------------- Total stockholders' equity 103,432,391 100,875,959 ---------------- ---------------- Total liabilities and stockholders' equity $ 940,229,607 $ 936,995,237 ================ ================

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK Statements of Operations For the Three Months Ended March 31, 2003 and 2002 (Unaudited)

THREE MONTHS ENDED MARCH 31, 2003 2002 --------------- -------------- Interest income: Interest and fees on loans $ 9,938,446 $ 8,746,100 Dividend on Federal Home Loan Bank stock 43,120 22,826 Interest on securities held-to-maturity 892,385 -- Interest on securities available-for-sale 673,373 1,813,513 Interest on Federal funds sold 271,524 285,500 Other interest income 9,425 4,076 --------------- -------------- Total interest income 11,828,273 10,872,015 Interest expense: Demand - interest bearing 6,268 9,537 Savings and money market 578,448 564,327 Time certificates of deposit: Less than $100,000 720,352 811,325 $100,000 or more 1,409,319 1,572,954 Other borrowings 598,323 -- --------------- -------------- Total interest expense 3,312,711 2,958,143 Net interest income before provision for loan losses 8,515,563 7,913,872 Provision for loan losses 600,000 100,000 --------------- -------------- Net interest income after provision for loan losses 7,915,563 7,813,873 --------------- -------------- Other income: Service charges on deposit accounts 1,640,115 1,598,628 Remittance fees 215,806 213,488 Letter of credit related fees 191,807 193,328 Gain on sale of loans 428,992 -- Other operating income 461,406 532,749 --------------- -------------- Total other income 2,938,127 2,538,193 --------------- -------------- Other expenses: Salaries and employee benefits 3,231,985 2,892,861 Security guards 218,538 234,204 Net occupancy expense 697,098 721,657 Equipment expense 339,747 350,693 Data processing 471,381 448,148 Net other real estate owned expense -- 41 Office supplies 76,102 115,351 Legal and professional 178,257 417,921 Advertising and public relations 152,601 127,889 Other operating expenses 918,364 743,558 --------------- -------------- Total other expenses 6,284,072 6,052,323 --------------- -------------- Income before income taxes 4,569,617 4,299,742 Income taxes 1,849,000 1,719,000 --------------- -------------- Net income $ 2,720,617 $ 2,580,742 =============== ============== Net income per share: Basic $ 0.26 $ 0.24 Diluted $ 0.25 $ 0.24 Weighted-average common shares outstanding Basic 10,621,554 10,607,426 Diluted 10,683,470 10,681,124

See accompanying notes to financial statements PACIFIC UNION BANK Statements of Cash Flows For the Three Months Ended March 31, 2003 and 2002 (Unaudited)

MARCH 31, MARCH 31, 2003 2002 -------------- ------------- Cash flows from operating activities: Net income $ 2,720,617 $ 2,580,742 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses 305,570 345,341 Provision for loan losses 600,000 100,000 Accretion of discount and amortization of premium on securities held-to-maturity, net 156,511 -- Accretion of discount and amortization of premium on securities available-for-sale, net (283,382) 46,708 Net loss (gain) on disposal of Bank premises and equipment 9,943 (7,100) Gain on sale of loans (428,992) -- Origination of loans held for sale -- Proceeds from sale of loans held for sale -- Decrease (Increase) in accrued interest receivable 123,705 (322,626) Decrease in deferred income taxes 442,000 945,001 Stock dividend on Federal Home Loan Bank stock (47,000) (22,600) Increase in other assets (620,354) (134,640) Decrease in accrued interest payable (33,661) (1,926,489) Increase in other liabilities 476,341 220,573 -------------- ------------- Net cash provided by operating activities 3,421,298 1,824,910 -------------- ------------- Cash flows from investing activities: Proceeds from maturities and redemptions of securities held-to-maturity 12,992,806 -- Proceeds from maturities and redemptions of securities available-for-sale 19,870,481 16,356,355 Purchase of securities available-for-sale (34,658,226) -- Proceeds from recoveries of written-off loans 12,321 28,207 Net increase in loans (48,700,027) (4,650,770) Purchases of Bank premises and equipment (25,543) (223,326) Proceeds from sale of Bank premises and equipment -- 7,100 -------------- ------------- Net cash (used in) provided by investing activities (50,508,188) 11,517,566 -------------- ------------- Cash flows from financing activities: Net increase (decrease) in demand deposits, non-interest-bearing 16,648,737 (992,094) Net increase in demand deposits, interest-bearing 22,244 1,107,974 Net decrease in money market and savings deposits (23,491,866) (9,785,573) Net increase (decrease) in time certificates of deposit 6,566,141 (12,886,956) Proceeds from exercise of stock options -- 10,835 -------------- ------------- Net cash used in financing activities (254,744) (22,545,814) -------------- ------------- Net decrease in cash and cash equivalents (47,341,634) (9,203,338) Cash and cash equivalents at beginning of period 86,765,173 68,073,953 -------------- ------------- Cash and cash equivalents at end of period $ 39,423,539 $ 58,870,615 ============== ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,346,372 $ 4,884,632 Income taxes $ 1,000,000 $ 700,000 ============== =============

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Pacific Union Bank ("Bank") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 2. COMPREHENSIVE INCOME Comprehensive income consists of net income and net unrealized gain (loss) on securities available-for-sale. The comprehensive income amounted to $2.6 million which included net income of $2.7 million and decrease in unrealized gain of $164,000, which is net of the tax effect of $119,000 for the three months ended March 31, 2003. 3. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation for the three months ended March 31, 2003 and 2002.

INCOME SHARES PER SHARE 2003 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- --------- Basic EPS - Income available to common stockholders $2,720,617 10,621,554 $ 0.26 Effect of Dilutive Securities - Options -- 61,916 (0.01) ---------- ---------- -------- Diluted EPS - Income available to common stockholders $2,720,617 10,683,470 $ 0.25 ========== ========== ========

INCOME SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- --------- Basic EPS - Income available to common stockholders $2,580,742 10,607,426 $ 0.24 Effect of Dilutive Securities - Options -- 73,698 -- ---------- ---------- -------- Diluted EPS - Income available to common stockholders $2,580,742 10,681,124 $ 0.24 ========== ========== ========

4. CAPITAL TRANSACTIONS The Bank's outstanding number of shares was 10,621,554 at March 31, 2003. The Bank has declared a quarterly cash dividend of $0.05 per common share on April 24, 2003. The cash dividend will be paid on or about May 27, 2003 to all shareholders of record as of May 15, 2003. 5. STOCK OPTIONS Had compensation cost for the Bank's stock option plan been determined based on the fair values at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, the Bank's net income and earnings per share for the three months ended March 31, 2003 and March 31, 2002 would have been reduced to the pro forma indicated below.

MARCH 31, 2003 MARCH 31, 2002 -------------- -------------- Net Income: As reported $ 2,720,617 $ 2,580,742 Pro-forma 2,706,718 2,568,629 Earnings per share: As reported: Basic $ 0.26 $ 0.24 Diluted 0.25 0.24 Pro-forma: Basic $ 0.25 $ 0.24 Diluted 0.25 0.24

6. RECENT ACCOUNTING PRONOUNCEMENTS In, May 2002, Statement of Financial Accounting Standards No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections (SFAS No. 145), was issued. SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will no longer be permitted for certain extinguishments considered to be part of a company's risk management strategy. SFAS 145 also amends SFAS No. 13 to require certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). SFAS No. 145 is effective for financial statements issued after May 15, 2002, and with respect to the impact of the reporting requirements of changes made to SFAS No. 4 for fiscal years beginning after May 15, 2002. The adoption of SFAS No. 145 did not have any impact on its financial condition or results of operations. In November 2002, FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34, (FIN No. 45) was issued. FIN No. 45 clarifies requirements relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires that upon issuance of a guarantee, companies recognize a liability for the fair value of the obligation it assumes under that guarantee. The Company has adopted the annual disclosure provisions of FIN No. 45 in the year ended December 31, 2002 consolidated financial statements. The adoption of FIN 45 did not have a material impact on the Bank's financial statements. In October 2002, Statement of Financial Accounting No. 147, Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 applies to all acquisitions of financial institutions except those between mutual enterprises. This Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. The provisions of this Statement relating to the application of the purchase method of accounting, was effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions of this Statement relating to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets were effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets in were effective on October 1, 2002, with earlier application permitted. The adoption of FASB No. 147 did not have a material effect on the financial statements. In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation ( SFAS No. 123 ), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in not only annual, but also interim financial statements about the effect the fair value method would have had on reported results. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002, and the Bank has adopted those disclosure requirements. In January 2003, The Financial Accounting Standards Board (FASB or the "Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation addresses consolidation by business enterprises of variable interest entities and clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Certain disclosures are effective immediately. The adoption of FIN No. 46 is not expected to have a material effect on the financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis includes forward-looking statements regarding management's beliefs, projections and assumptions concerning future results and events. When used the words "anticipate", "believe", "estimate", "expect", and "intend" and words or phrases of similar meanings as they relate to the Bank or the Bank's management, are intended to identify forward-looking statements. These statements are not guarantees and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Bank to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, governmental policies and actions of regulatory agencies, costs associated with the Bank's future expansion, competition from other commercial banks and other competition and market and general economic factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which speak as of the date hereof. All forward-looking statements contained in this Form 10-Q are qualified in their entirety by this cautionary statement. The following discussion and analysis is intended to provide details of the results of operations of the Bank for the three months ended March 31, 2003 and 2002 and financial condition at March 31, 2003 and at December 31, 2002. The following discussion should be read in conjunction with Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the Federal Deposit Insurance Corporation in particular as it relates to the critical accounting policies as discussed in item 14 of the Form 10-K/A. RESULTS OF OPERATIONS Net income for the quarter ended March 31, 2003 increased by $140,000 or 5.42% to $2.7 million compared to $2.6 million for the same period in 2002. Diluted earnings per share for the first quarter of 2003 was $0.25, as compared to $0.24 for the same period of 2002. Income before income tax expense amounted to $4.6 million for the first quarter of 2003, an increase of $270,000 or 6.28% compared to $4.3 million for the same quarter a year ago. The annualized return on average assets ("ROA") and return on average stockholders' equity ("ROE") were 1.11% and 10.71%, respectively, for the first quarter of 2003, compared to 1.29% and 11.53%, respectively, for the same quarter of 2002. NET INTEREST INCOME The Bank's primary source of income is net interest income, which is the difference between interest income from interest-bearing assets and interest paid on interest-bearing liabilities, such as deposits and other borrowings used to fund those assets. The Bank's net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yield earned on interest-earning assets and rates paid on interest-bearing liabilities. The Bank also generates non-interest income, including the service charges on deposit accounts and other transactional fees. The Bank's non-interest expenses consist primarily of personnel, occupancy and equipment expense and other operating expenses. The Bank's results of operations are affected by its provision for loan losses and may also be significantly affected by other factors including general economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory agencies. Net interest income before the provision for the loan losses increased by $602,000 or 7.60% to $8.5 million in the first quarter of 2003, compared to $7.9 million in the same quarter of 2002. Total interest income increased by $956,000 or 8.80% to $11.8 million in the first quarter of 2003, compared to $10.9 million in the same quarter of 2002 primarily due to an increase of $1.2 million in interest and fees on loans and partially offset by a $248,000 decrease in interest on investment securities. The increase in interest income is contributed by the average volume increase of $174.9 million in interest earning-assets to $933.3 million in the first quarter of 2003 from $758.4 million in the same quarter of 2002 despite the decrease in yield on average interest earning-assets by 66 basis points compared to the same quarter of 2002. The yield on average interest earning-assets was 5.07% in the first quarter of 2003 compared to 5.73% in the same quarter of 2002. Average net loans increased $133.8 million or 24.0% to $691.0 million in the first quarter of 2003 compared to $557.2 million for the corresponding quarter of 2002. Offsetting the increase in average net loans, the yield on average loans decreased by 53 basis points to 5.75% in the first quarter of 2003 from 6.28% in the same quarter of 2002, which negatively affected the loan interest income. The decrease in the interest income of Federal funds sold and investment securities was mainly due to the decrease in yields in the first quarter of 2003 compared with the same quarter of 2002. The average Federal funds sold increased $19.9 million to $88.4 million in the first quarter of 2003 compared with $68.5 million for the corresponding quarter of 2002. The yield on average Federal funds sold dropped 44 basis points to 1.23% compared to 1.67% for the same quarter of 2002. Average investment securities increased $16.2 million to $146.3 million in the first quarter of 2003 compared with $130.1 million for the corresponding quarter of 2002. The yield on average investment securities for the first quarter of 2003 was 4.28% which was a decrease of 130 basis points from 5.58% for the correspondent quarter of 2002. Total interest expense increased by $355,000 or 11.99% to $3.3 million for the first quarter of 2003 compared to $3.0 million for the same quarter of 2002. The increase is mainly due to an increased interest expense of $598,000 on $70.0 million in advances from Federal Home Loan Bank in the first quarter of 2003 compared to zero for the correspondent quarter of 2002. The interest expense on time certificates of deposit of $100,000 or more decreased $164,000 or 10.40% to $1.4 million in the first quarter of 2003 compared to $1.6 million for the same quarter of 2002. Average time certificates of deposit of $100,000 or more increased $15.2 million or 6.36% to $254.8 million in the first quarter of 2003 compared with $239.6 million for the corresponding period of 2002. The cost on average time certificates of deposit of $100,000 or more decreased 42 basis points to 2.24% in the first quarter of 2003 from 2.66% in the corresponding quarter of 2002. The cost of funds decreased 16 basis points to 1.54% in the first quarter of 2003 compared with 1.70% in the same quarter of 2002. NET INTEREST MARGIN Net interest margin decreased by 52 basis points or 12.47% to 3.65% for the first quarter of 2003 compared to 4.17% for the corresponding period of 2002. The decrease in net interest margin was primarily attributable to the decrease in the average interest-earning assets yield of 66 basis points to 5.07% in the first quarter of 2003 compared with 5.73% in the same quarter of 2002. The decrease in the average interest-earning assets yield was offset by the cost of funds decrease of 16 basis points to 1.54% in the first quarter of 2003 from 1.70% in the corresponding quarter of 2002. Approximately 80% of the loan portfolio has yields based upon the prime rate which automatically reprice based upon changes in the prime rate. In a declining rate environment, the Bank's net interest rate margin decreases as the interest-earning assets are repriced at a faster pace than the interest-bearing liabilities. The following table presents condensed average balance sheet information for the Bank, together with interest rates earned and paid on the various sources and uses of funds for each of the periods indicated: DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME

For the Three Months Ended For the Three Months Ended ------------------------------------------ ---------------------------------------- March 31,2003 March 31,2002 ------------------------------------------ ---------------------------------------- Average % to Average % to Average Income/ Rate/ Earning Average Income/ Rate/ Earning Balance Expense Yield(30) Assets Balance Expense Yield(1) Assets ------------------------------------------ ---------------------------------------- ASSETS: Interest-earning assets: Loans, net(31) $690,989 $ 9,938 5.75% 74.03% $557,226 $ 8,746 6.28% 73.47% Federal Home Loan Bank stock 3,538 43 4.86 0.38 1,512 23 6.08 0.20 Taxable investment securities(32) U.S. Treasury Securities 2,341 18 3.08 0.25 1,508 22 5.84 0.20 U.S. Governmental Agencies 144,009 1,548 4.30 15.43 128,432 1,790 5.58 16.93 Tax-exempt Investment Securities: State & Municipal Obligation - - - - 200 2 3.85 0.03 Federal funds sold 88,359 272 1.23 9.47 68,462 285 1.67 9.03 Interest-earning deposits 4,098 9 0.89 0.44 1,061 4 1.53 0.14 -------- -------- ------ -------- -------- ------ Total interest-earning assets 933,334 11,828 5.07% 100.00% 758,401 10,872 5.73% 100.00% -------- -------- ------ -------- -------- ------ Non-interest-earning assets: Cash and due from banks 23,940 25,024 Premises and equipment, net 6,502 9,311 Other real estate owned - - Customers' acceptance liabilities 595 583 Accrued interest receivable 3,208 3,394 Other assets 9,989 4,260 -------- -------- Total non-interest-earning assets 44,234 42,572 -------- -------- Total assets $977,568 $800,973 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $156,766 $ 551 1.43% $113,589 $ 486 1.74% Super NOW 7,718 6 0.32 7,116 10 0.57 Savings 45,373 27 0.24 42,413 78 0.75 Time certificates of deposit of $100,000 or more 254,799 1,409 2.24 239,566 1,573 2.66 Other time certificates of deposit 107,571 721 2.72 103,606 811 3.17 Other borrowings 70,031 598 3.42 - - - -------- -------- -------- -------- Total interest-bearing liabilities 642,258 3,312 2.09% 506,290 2,958 2.37% -------- -------- -------- -------- Non-interest-bearing liabilities: Demand deposits 227,204 198,903 Other liabilities 6,465 6,241 -------- -------- Total non-interest-bearing liabilities 233,669 1.54% 205,144 1.70% -------- -------- Stockholders' equity 101,641 89,539 -------- -------- Total liabilities and stockholders' equity 977,568 800,973 ======== ======== Net interest income 8,516 7,914 ======== ======== Net interest spread(33) 2.98% 3.36% ===== ====== Annualized net interest margin(34) 3.65% 4.17% ===== ====== Ratio of average interest-bearing assets to average interest-bearing liabilities 145.32% 149.80% ====== ======

The following table sets forth, for the years 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 changes in average daily balances (volume) or changes in interest rates (rate). The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each: - ----------------------------------- (30) Average rates/yields for these periods have been annualized. (31) Loan includes loans held for sale and net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $1.4 million and $1.1 million at March 31, 2003 and 2002. (32) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (33) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (34) Represents net interest income as a percentage of average interest-earning assets.

FOR THE THREE MONTH ENDED MARCH 31, 2003 VS. 2002 INCREASES (DECREASES) DUE TO CHANGE IN VOLUME RATE(1) TOTAL ------ ------- ----- (DOLLARS IN THOUSANDS) EARNING ASSETS: INTEREST INCOME: Loans, net(2) .................... $ 1,969 (777) 1,192 Federal Home Loan Bank stock ..... 25 (5) 20 Taxable investment securities: U. S. Treasury securities ...... 9 (13) (4) U. S. Government agencies ...... 200 (442) (242) Tax-exempt securities:(3) State and Municipal Obligation.. (2) - (2) Federal funds sold ............... 71 (84) (13) Interest-earning deposits ........ 7 (2) 5 ------- ------- ------- Total net change in interest income ....... $ 2,279 ($1,323) $ 956 ======= ======= ======= DEPOSITS AND BORROWED FUNDS: INTEREST EXPENSE: Money market deposits ............ 162 (97) 65 Super NOW ........................ 1 (4) (3) Savings deposits ................. 5 (56) (51) Time certificates of deposit in denominations of $100,000 or more ........................ 95 (260) (165) Other time deposits .............. 30 (120) (90) Other borrowings ................. 598 (0) 598 ------- ------- ------- Total net change in interest expense ...... 891 (537) 354 ------- ------- ------- Change in net interest income ....... $ 1,388 ($ 786) $ 602 ======= ======= =======

PROVISION FOR LOAN LOSSES Provision for loan losses are made monthly, in anticipation of credit risks. Credit risk is inherent in making loans. The Bank sets aside an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as the provision for loan losses. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in Management's judgment is adequate to absorb losses inherent in the Bank's loan portfolio. For the first quarter of 2003 the provision for loan losses amounted to $600,000 compared with $100,000 in the corresponding period of 2002. The increase was mainly attributable to a strong loan growth in the first quarter of 2003. On a quarterly basis, management performs an analysis of the adequacy of the allowance for loan losses. The results of this analysis for the quarter ended March 31, 2003 determined that the allowance was adequate to cover losses inherent in the portfolio. The procedures for monitoring the adequacy of the allowance, as well as detailed information concerning the allowance itself, are included below under "Allowance for loan losses." NON-INTEREST INCOME Non-interest income increased $400,000 or 15.76% to $2.9 million in the first quarter of 2003 compared to $2.5 million in the same quarter of 2002. The increase resulted mainly from the gain of $429,000 on the sale of SBA loans. Management expects to continue to recognize gains from the sale of SBA loans. Offsetting the increase, other operating income decreased by $72,000. The other operating income consists of credit card related fees, mortgage loan related fees, merchant discount fees, remittance and cable fees and other various fees. The following table sets forth the various components of the Bank's non-interest income for the periods indicated: - --------------------------- (1) Rates for these periods on which calculations are based have been annualized. (2) Loan fees net of direct cost have been included in the calculation of interest income. Loan fees were $189,000 and $134,000 for the three months ended March 31, 2003 and 2002, respectively. Loans are net of the allowance for loan losses, deferred fees and related direct costs. (3) Yields on tax-exempt income have not been computed on a tax equivalent basis, because the percentage of tax-exempt securities is minimal. NON-INTEREST INCOME (Dollars in thousands)

Three Months Ended Increase (Decrease) ------------------ ------------------- 03/31/03 03/31/02 Amount Percent(%) -------- -------- ------ ---------- Service charges on deposit accounts $1,640 $1,599 $ 41 2.56 % Remittance fees 216 213 3 1.41 Letter of credit related fees 192 193 (1) (1.04) Gain on sale of loans 429 -- 429 100.00 Other operating income 461 533 (72) (13.32) ------ ------ ------ ------ Total $2,938 $2,538 $ 400 15.76 % ====== ====== ====== ======

NON-INTEREST EXPENSE Non-interest expense increased by $232,000 or 3.83% to $6.3 million in the first quarter of 2003, compared to $6.1 million in the corresponding quarter of 2002. The increase is mainly attributable to an increase of $339,000 in salaries and employee benefits offset by a decrease of $240,000 in legal and professional expenses. An increase in salaries and employee benefits was partially due to the increases in reserves for medical expenses and annual bonus for 2003. The decrease in the legal and professional expenses was mainly due to reduced consulting expenses associated with an enterprise-wide risk management implementation which peaked in early 2002. For the first three months of 2003, the consulting expenses amounted to $20,000 compared to $382,000 for the same period of 2002. Other operating expenses consist of other loan related expenses, regulatory assessment expenses, employee related fees and other outside fees. The efficiency ratio for the first quarter of 2003 was 54.86% compared to $57.91% for the correspondent quarter of 2002 The following table presents the components of the non-interest expense with the amount and percentage changes for the periods indicated: NON-INTEREST EXPENSE (Dollars in thousands)

Three Months Ended Increase / (Decrease) ------------------ --------------------- 03/31/03 03/31/02 Amount Percent (%) -------- -------- ------ ----------- Salaries and employee benefits $3,232 $2,893 $ 339 11.72 % Security guards 219 234 (15) (6.41) Net occupancy expense 697 722 (25) (3.46) Equipment expense 340 351 (11) (3.13) Data processing 471 448 23 5.13 Office supplies 76 115 (39) (33.91) Legal and professional 178 418 (240) (57.42) Advertising and public relations 153 128 25 19.53 Communication expenses 263 243 20 8.23 Other operating expenses 655 500 155 31.00 ------ ------ ------ ------ Total $6,284 $6,052 $ 232 3.83 % ====== ====== ====== ======

INCOME TAX The effective tax rate for the first quarter ended March 31, 2003 was 40.46% compared to 39.98% for the same period of 2002. The Bank files its California tax return using the Water's Edge Unitary method. When computing its California franchise tax liability, the California law requires that the Bank consider the taxable income allocated from estimated combined net taxable income using the apportionment factor of property, payroll and revenues over combined property, payroll and revenue of its foreign-owned majority shareholder. FINANCIAL CONDITION The Bank's total assets were $940.2 million at March 31, 2003, an increase of $3.2 million or 0.35% from the $937.0 million at December 31, 2002. The net increase is attributable to a $48.5 million or 7.20% increase in net loans, a $6.9 million or 28.85% increase in cash and due from banks, and offset by a decrease in Federal funds sold of $54.3 million or 86.88%. Total deposits decreased by $255,000 to $759.7 million at March 31, 2003 from $760.0 million at December 31, 2002. The non-interest bearing deposits of $16.6 million or 7.45% and time certificates of deposit of $100,000 or more of $9.1 million or 3.51% increased in the first quarter of 2003 compared with December 31, 2002. Offsetting these increases, money market deposits and savings deposits decreased a $23.5 million or 13.78% in the first quarter of 2003 compared with the same period of 2002. The Bank's advances from Federal Home Loan Bank remained at a $70.0 million at March 31, 2003, the same as at December 31, 2002. Stockholders' equity increased $2.6 million or 2.53% to $103.4 million at March 31, 2003 from $100.9 million at December 31, 2002. INTEREST-EARNING ASSET MIX Total earning assets amounted to $890.4 million at March 31, 2003, compared with $894.5 million at December 31, 2002, representing a decrease of $4.1 million or 0.46%. The composition of the earning assets changed slightly at March 31, 2003 compared with December 31, 2002. The net loans as a percentage of total earning assets increased 5.79% to 81.17% and the percentage of Federal funds sold to the total earning assets decreased 6.07% to 0.92% at March 31, 2003 compared to December 31, 2002. On an average basis, interest-earning assets amounted to $933.3 million, an increase of $174.9 million or 23.07% for the first three months of 2003 compared to $758.4 million for the same period of 2002. The table below shows the changes in the earning asset mix as of the dates indicated:

(Dollars in thousands) As of 03/31/03 As of 12/31/02 --------------- -------------- Types of earning assets Amount Percent (%) Amount Percent (%) ------ ----------- ------ ----------- Federal funds sold $ 8,200 0.92% $ 62,500 6.99% Federal Home Loan Bank stock 3,585 0.40 3,538 0.40 Securities held-to-maturity 76,164 8.55 89,314 9.98 Securities available-for-sale 79,489 8.93 64,701 7.23 Net loans 722,775 81.17 674,258 75.38 Interest-bearing deposits 230 0.03 211 0.02 -------- ------ -------- ------ Total earning assets $890,443 100.00% $894,522 100.00% ======== ====== ======== ======

SECURITIES The Bank classifies its securities as held-to-maturity or available-for-sale. The securities classified as held-to-maturity are those that the Bank has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. The securities that could be sold in response to changes in interest rate, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available-for-sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax as a component of comprehensive income. As of March 31, 2003, the Bank had a net unrealized gain of $912,000 on its available for sale portfolio. Accumulated other comprehensive income for the first three months of 2003 was $164,000 representing the net unrealized loss, net of tax. The total investment securities increased $1.6 million or 1.06% to $155.7 million at March 31, 2003 from $154.0 million at December 31, 2002. During the first quarter of 2003, purchased available-for-sale securities amounted to $34.7 million compared to zero for the correspondent quarter of 2002. The following table summarizes the amortized cost, fair value and distribution of the Bank's investment securities as of the dates indicated: INVESTMENT PORTFOLIO (Dollars in thousands)

As of 03/31/03 As of 12/31/02 --------------- -------------- Amortized Fair Amortized Fair Cost Value Cost Value --------- -------- --------- -------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ 20,994 $ 21,052 $ 1,003 $ 1,074 U.S. Government agencies 15,729 15,857 25,996 26,290 Mortgage-backed securities (1) 39,349 39,999 34,000 34,730 State and political subdivision 2,505 2,581 2,507 2,607 -------- -------- -------- -------- Total available-for-sale $ 78,577 $ 79,489 $ 63,506 $ 64,701 ======== ======== ======== ======== HELD-TO-MATURITY: Mortgage-backed securities (1) 76,164 77,404 89,314 90,799 Total held-to-maturity 76,164 77,404 89,314 90,799 -------- -------- -------- -------- Total investment securities $154,741 $156,893 $152,820 $155,500 ======== ======== ======== ========

- ---------------------------------- (1) Principal balance may be prepaid before contracted maturity date. INVESTMENT MATURITIES AND REPRICING SCHEDULE (Dollars in thousands) As of March 31, 2003

After One But After Five but Within One Year Within Five Years Within Ten Years After Ten Years Total -------------------- ----------------- ---------------- --------------------- ---------------- Amount Yield(1) Amount Yield (1) Amount Yield(1) Amount Yield (1) Amount Yield(1) -------------------- ----------------- ---------------- --------------------- ---------------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ 19,987 1.16% $ 1,065 5.82% $ - -% $ - -% $ 21,052 2.09% U.S. Government agencies 6,105 5.94 9,752 2.89 - - - - 15,857 4.42 Mortgage-backed securities 18,520 5.65 11,011 5.94 - - 10,468 5.91 39,999 5.75 State and political 1,527 6.13 1,054 6.17 - - - - 2,581 6.14 ------------------ --------------- ------------- ------------------ --------------- Total available-for-sale $ 46,139 5.29% $ 22,882 5.61% $ - -% $ 10,468 5.91% $ 79,489 5.42% ================== =============== ============= ================== =============== HELD-TO-MATURITY: Mortgage-backed securities(2) - - 76,164 4.36 - - - - 76,164 4.36 ------------------ --------------- ------------- ------------------ --------------- Total held-to-maturity - - 76,164 4.36 - - - - 76,164 4.36 ------------------ --------------- ------------- ------------------ --------------- Total investment $ 46,139 5.29% $ 99,046 5.11% $ - -% $ 10,468 5.91% $155,653 5.26% ================== =============== ============= ================== ===============

(1) Yield on tax-exempt obligations has not been computed on a tax equivalent basis because the percentage of tax-exempt securities is minimal. (2) The mortgage-backed securities reflect stated maturities and not anticipated prepayments. LOANS The Bank experienced strong loan demand in the first three months of 2003. Total gross loans increased $48.9 million or 7.17% to $732.1 million at March 31, 2003 from $683.1 million at December 31, 2002. Total commercial and industrial loans increased $13.5 million or 10.78% to $138.9 million at March 31, 2003 from $125.4 million at December 31, 2002. Commercial real estate loans increased $44.7 million or 11.29% and residential mortgage loans decreased $8.2 million or 21.83% during the first three months of 2003. $6.1 million of the guaranteed portion of SBA loans were sold during the first quarter of 2003. The following table sets forth the composition of the Bank's loan portfolio as of the dates indicated: LOAN PORTFOLIO COMPOSITION (Dollars in thousands)

As of 03/31/03 As of 12/31/02 -------------- -------------- Percent Percent Amount of Total Amount of Total ------ -------- ------ -------- Commercial and industrial $138,881 18.97% $125,363 18.35% Installment loans 19,812 2.71 21,225 3.11 Real estate loans: Commercial 440,492 60.17 395,807 57.94 Residential mortgage 29,283 4.00 37,459 5.48 Home equity 6,090 0.83 5,993 0.88 SBA 69,473 9.49 74,560 10.91 Other (1) 3,502 0.48 3,619 0.53 Trade Finance 12,566 1.72 12,488 1.83 Bills Bought 11,980 1.64 6,617 0.97 -------- ------ -------- ------ Total gross loans (2) $732,079 100.00% $683,131 100.00% ======== ====== ======== ======

- --------------- (1) Consists predominantly of credit card loans. (2) Net of unearned income and participation loans sold. NON-PERFORMING ASSETS Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans and OREO. Total non-performing assets at March 31, 2003 increased by $135,000 to $2.2 million, compared with December 31, 2002. Total non-performing assets were 0.23% of total assets at March 31, 2003, compared to 0.22 % of total assets at December 31, 2002. The majority balance of the non-accrual home mortgage loans represented a single commercial loan secured by the business owners' home of $696,000 at March 31, 2003 which the Bank anticipates a full collection. The non-accrual on home mortgage loans, which include a single loan balance of $696,000, amounted to $802,000 in total at March 31, 2003. As of March 31, 2003, the Bank had no OREO. The non-performing loan coverage ratio, defined as the allowance for loan losses to non-performing loans, slightly decreased to 430.54 % as of March 31, 2003 from 437.96% at December 31, 2002. The following table provides information with respect to the components of the Bank's non-performing assets as of the dates indicated. NON-PERFORMING ASSETS (Dollars in thousands)

3/31/2003 12/31/2002 3/31/2002 --------- ---------- --------- NON-ACCRUAL LOANS: Commercial and industrial $1,137 $1,091 $1,436 Installment loans 37 28 9 Real estate loans: Commercial - - 3,294 Home mortgage 802 805 117 Home equity - - 127 SBA 159 - 170 Other 1 - 5 Trade Finance - 74 - Bills Bought - - - ------ ------ ------ Total $2,136 $1,998 $5,158

(Table continues on following page.)

3/31/2003 12/31/2002 3/31/2002 --------- ---------- --------- LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING (AS TO PRINCIPAL OR INTEREST): Commercial and industrial $ - $ - $ - Installment loans - - - Real estate loans: Commercial - - - Home mortgage - - - Home equity - - - SBA Other 25 28 75 Trade Finance - - - Bills Bought - - - ------ ------ ------ Total $ 25 $ 28 $ 75 RESTRUCTURED LOANS: Commercial and industrial $ - $ - $ - Installment loans - - - Real estate loans: Commercial - - - Home mortgage - - - Home equity - - - SBA Other - - - Trade Finance - - - Bills Bought - - - ------ ------ ------ Total $ - $ - $ - ------ ------ ------ Total non-performing loans $2,161 $2,026 $5,233 Other real estate owned - - - ------ ------ ------ Total non-performing assets $2,161 $2,026 $5,233 ====== ====== ====== Non-performing loans as a percentage of total gross loans 0.30% 0.30% 0.91% Non-performing assets as a percentage of total gross loans and other real estate owned 0.30% 0.30% 0.91%

ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $9.3 million or 1.27% of total loans as of March 31, 2003 compared to $8.9 million or 1.30% of total loans at December 31, 2002. The following table presents information relating to the allowance for loan losses for the periods indicated (Dollars in thousands)

YTD YTD YTD 03/31/03 12/31/02 03/31/02 --------- --------- ---------- ALLOWANCE FOR LOAN LOSSES: Balance at beginning of period $ 8,873 $ 9,467 $ 9,467 Provision for loan losses 600 1,100 100 Loans charged-off (181) (1,805) (393) Recoveries of charged-off loans 12 111 28 --------- --------- ---------- Balance at end of period 9,304 8,873 9,202 ========= ========= ========== RATIOS: Net loan charge-offs to average total loans 0.10% 0.28% 0.26% Provision for loan losses to average total loans 0.34 0.18 0.02 Allowance for loan losses to gross loans at end of period 1.27 1.30 1.60 Allowance for loan losses to total non-performing loans 430.54 437.96 175.85 Net loan charge-offs to allowance for loan losses at end of 7.25 19.10 3.97 period Net loan charge-offs to provision for loan losses 28.11 154.05 365.48

In determining the allowance for loan losses, management continues to assess the risk inherent in the loan portfolio, the possible impact of known and potential problem loans, and other factors such as portfolio composition, loan concentration, and trends in local economic conditions. The Bank formally assesses the allowance for loan losses on a quarterly basis. The allowance for loan losses begins with Management reviewing each individual classified and criticized loan in detail, and evaluating, among other things, the adequacy of collateral, payment record, current loan status and borrowers' financial capacity. A loan loss allowance is assigned to each impaired loan. Loans categorized as impaired from this quarterly allocation of loan loss allowance are based upon the specifics of the loans' circumstances, including updated collateral value, borrowers' or guarantors' financial capacity, payment record and recent conversations with the borrower. Additionally, each quarter the Bank updates its twelve-quarter loss migration analysis for its commercial loan pool, six-quarter loss migration analysis for its homogeneous loan pool and four-quarter loss migration analysis for its credit card loan pool to drive the rolling respective loan loss experience percentages. These loan pools are assigned an appropriate reserve factor based upon the Bankss.s historical charge off experience, other factors, and then accounts for qualitative adjustments that take into consideration current conditions. The allowance is maintained at a level the Bank considers adequate to cover inherent risk of probable loss associated with its loan portfolio under prevailing and anticipated economic conditions. Based on the Bank's evaluation process and the methodology to determine the level of the allowance for loan losses, management believes the allowance level as of March 31, 2003 to be adequate to absorb the estimated known and inherent risks identified through its analysis. However, no assurance can be given that the Bank will not sustain losses in any given period which could be substantial in relation to the size of the allowance. DEPOSITS The Bank's total deposits amounted to $759.7 million at March 31, 2003, a decrease of $254,000 from $760.0 million at December 31, 2002. The Bank's average deposits increased $94.2 million or 13.36% to $799.4 million for the first quarter of 2003 from $705.2 million for the same quarter of 2002. The average money market accounts increased $43.2 million or 38.01% to $156.8 million for the first quarter of 2003 from $113.6 million for the same quarter of 2002. The average non-interest bearing accounts increased $28.3 million or 14.22% to $227.2 million for the first quarter of 2003 from $198.9 million for the same quarter of 2002. The ratio of average noninterest-bearing deposits to average total deposits was 28.42% for the first quarter of 2003 and 28.21% for the same quarter of 2002. The Bank's average total cost of deposits was 1.38% for the first quarter of 2003 and 1.70% for the same quarter of 2002. The Bank does not hold any brokered deposits. The following table illustrates the deposit mix as of the dates indicated:

(Dollars in thousands) As of March 31, 2003 As of December 31, 2002 --------------------- ---------------------- Amount Percent Amount Percent ------ ------- ------ ------- Types of deposits: Demand, non-interest-bearing $240,026 31.59% $223,377 29.39% Money market accounts 101,736 13.39 126,272 16.61 Super Now 7,624 1.00 7,602 1.00 Savings 45,259 5.96 44,215 5.82 Time certificates of deposits of $100,000 or more 267,720 35.24 258,652 34.03 Other time deposits 97,376 12.82 99,877 13.15 -------- ------ -------- ------ Total deposits $759,741 100.00% $759,995 100.00% ======== ====== ======== ======

OTHER BORROWINGS The Bank's borrowings from Federal Home Loan Bank amounted to $70.0 million at March 31, 2003 and December 31, 2002. CAPITAL RESOURCES As of March 31, 2003, stockholders' equity was $103.4 million or 10.99% of total assets, compared with $100.9 million or 10.77% as of December 31, 2002. The Bank is required to maintain a minimum ratio of qualifying total capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1 Risk-Based Capital Ratio"). As of March 31, 2003 and December 31, 2002, the Bank's Total Risk-Based Capital Ratios were 15.38% and 15.95%, respectively, and its Tier 1 Risk Based Capital Ratios were 14.13% and 14.70%, respectively. The Bank's regulatory capital continued to well exceed the regulatory minimum requirements on March 31, 2003; however, the Bank is no longer considered to be "well capitalized" as a result of Consent Agreement entered into with Federal Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal Proceedings." To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table and not be subject to any regulatory order, agreement or directive. Banks are also required to maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks that have received the highest rating of the five categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans, and federal regulators may, however, set higher capital requirements when a bank's particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.52% and 11.56% at March 31, 2003 and December 31, 2002, respectively. The following table presents the Bank's regulatory capital amount and ratios as of March 31, 2003.

AS OF MARCH 31, 2003 (DOLLARS IN THOUSANDS) ------------------------------------------------------------------ TO BE WELL CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS -------------------- --------------------- ---------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ------ -------- ---------- -------- ----------- Total capital (to risk-weighted assets) $111,990 15.38% $ 58,252 > or = 8.0% $ 72,815 > or = 10.0% Tier I capital (to risk-weighted assets) 102,884 14.13 29,125 > or = 4.0 43,687 > or = 6.0 Tier I capital (to average assets) 102,884 10.52 39,103 > or = 4.0 48,878 > or = 5.0 ======== ===== ======== ========== ======== ===========

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is the Bank's ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Bank's principal sources of liquidity have been growth in deposits and proceeds from the maturity of securities and repayments from loans. To supplement its primary sources of liquidity, the Bank maintained $178.7 million of borrowing capacity under a collateralized line of credit with the Federal Home Loan Bank of San Francisco. At March 31, 2003, the Bank's available liquidity totaled $295.0 million, which was approximately 38.83% of total deposits and 113.62% of total volatile liabilities compared to $186.4 million at December 31, 2002, which was approximately 24.52% of total deposits and 71.85% of total volatile liabilities. The volatile liabilities are comprised of time certificates of deposit of $100,000 or more and other volatile deposits. The Bank's policy is to maintain a minimum fund availability to total deposit and borrowing ratio of 20% and a minimum fund availability to total volatile liability ratio of 50%. The Bank considers any excessive cash holdings or balances in due from banks, overnight Fed funds sold, uncollateralized available-for-sale securities and readily available Federal Home Loan Bank advances as funds availability. The Bank follows the regulatory definition of volatile liabilities, which is Jumbo CD's. The ratios of the average balance of Jumbo CD's to average total deposits for March 31, 2003 and December 31, 2002 were 31.87% and 33.99%, respectively. The Bank had a significant portion of its time deposits maturing within one year or less as of March 31, 2003. Management anticipates that there may be some outflow of these deposits upon maturity due to the keen competition in the Bank's market place. However, based on its historical runoff experience, the Bank expects the outflow will be minimal and can be replenished through its normal growth in deposits. Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Bank's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through analyzing the repricing characteristics of its loans, securities, and deposits on an on-going basis. One of the primary goals is to optimize net income under varying interest rate environments. The focus of this process is the development, analysis, implementation and monitoring of earnings enhancement strategies that provide stable earnings and capital levels during periods of changing interest rates. Management uses both interest rate sensitivity analysis, and a simulation model to measure and quantify the impact to the Bank's profitability on the market value of its assets and liabilities. The interest rate sensitivity analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice in a particular time interval. A liability sensitivity results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. At March 31, 2003, the Bank maintained positive one-year gap position of $147.0 million or 15.63% of total assets. This compared with a positive one-year gap position of $86.5 million or 9.23% of total assets at December 31, 2002. The increase in gap was primarily due to a net increase in rate sensitive assets over rate sensitive liabilities. Because the Bank's assets tend to reprice more frequently than its liabilities over a twelve months horizon, the Bank will realize lower net interest income in a falling rate environment. Since an interest rate sensitivity analysis does not measure the timing differences in the repricing of assets and liabilities, the Bank uses a simulation model to quantify the extent of the differences in the behavior of the lending and funding rates, so as to project future earnings or market values under alternative interest scenarios. The following table presents the interest rate sensitivity of the Bank's interest-earning assets and interest-bearing liabilities as of March 31, 2003 using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its contractual terms. Actual payment patterns may differ from contractual payment patterns. INTEREST RATE SENSITIVITY ANALYSIS (Dollars in thousands)

At March 31, 2003 ----------------- Amounts Subject to Repricing Within --------------------------------------------------------- 3-12 After 5 0-3 Months Months 1-5 Years Years Total --------- --------- --------- --------- --------- INTEREST-EARNING ASSETS: Total Loans* $ 590,888 $ 17,544 $ 52,787 $ 70,169 $ 731,388 Federal Home Loan Bank Stock 3,585 -- -- -- 3,585 Investment securities 24,836 21,303 99,046 10,468 155,653 Federal Funds sold 8,200 -- -- -- 8,200 Interest-earning deposits 230 -- -- -- 230 --------- --------- --------- --------- --------- Total 627,739 38,847 151,833 80,637 899,056 --------- --------- --------- --------- --------- INTEREST-BEARING LIABILITIES: Money market 101,736 -- -- -- 101,736 NOW 7,624 -- -- -- 7,624 Savings deposits 45,259 -- -- -- 45,259 Time deposits of $100,000 or more 119,314 146,863 1,543 -- 267,720 Other Time deposits 42,004 46,804 8,568 -- 97,376 Borrowed funds -- 10,000 60,000 -- 70,000 --------- --------- --------- --------- --------- Total $ 315,937 $ 203,667 $ 70,111 $ -- $ 598,715 ========= ========= ========= ========= ========= Interest rate sensitivity gap $ 311,802 $(164,820) $ 81,722 $ 80,637 $ 309,341 Cumulative interest rate sensitivity gap $ 311,802 $ 146,982 $ 228,704 $ 309,341 Cumulative interest rate sensitivity gap ratio as a percentage of total assets 33.16% 15.63% 24.32% 32.90%

*Loans including loan held for sale and unearned fees and excluding Non-Accrual Loans Although interest rate sensitivity gap is a useful measurement and contributes to effective asset and liability management, it is difficult to predict the effect of changing interest rates based solely on that measure. As a result, the Asset/Liability Management Committee also regularly uses simulation modeling as a tool to measure the sensitivity of earnings and net portfolio value ("NPV") to interest rate changes. Net portfolio value is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. The simulation model captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans and deposits, principal amortization, call options on securities, balance sheet growth assumptions and changes in rate relationships as various rate indices react differently to market rates. The simulation measures the volatility of net interest income and net portfolio value under immediate rising or falling market interest rate scenarios in 100 basis point increments. The following table sets forth the Bank's estimated net interest income over a twelve month period and NPV based on the indicated changes in market interest rates as of March 31, 2003.

%CHANGE IN CHANGE NET INTEREST INCOME %CHANGE (IN BASIS POINTS) (NEXT TWELVE MONTHS) IN NPV - ----------------- -------------------- ------ +200 10.48% 7.42% +100 5.73 4.05 0 - - -100 -8.06 -4.28 -125 -9.95 -5.95

As indicated above, the net interest income increases (decreases) as market interest rates rise (fall). This is due to the fact that the Bank maintained a positive gap and also a substantial portion of the interest earning assets reprice immediately after the rate change, interest-bearing liabilities reprice slower than interest-earning assets, and interest-bearing liabilities do not reprice to the same degree as interest earning assets, given a stated change in the interest rate. The NPV increases (declines) as the interest income increases (decreases) since the change in the discount rate has a greater impact on the change in the NPV than does the change in the cash flows. Management believes that the assumptions used by it to evaluate the vulnerability of the Bank's operations to changes in interest rates approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Bank's assets and liabilities and the estimated effects of changes in interest rates on the Bank's net interest income and NPV could vary substantially if different assumptions were used or actual experience differs from the historical experience on which they are based. The Bank's historical strategies in protecting both net interest income and economic value of equity investments from significant movements in interest rates have involved restructuring its investment portfolio and using FHLB advances. Bank policies also permit the purchase of rate caps and floors, and engaging in interest rate swaps, although the Bank has not yet engaged in either of these activities. At March 31, 2003, the Bank had no derivative instruments outstanding. ITEM 4. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Bank's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Bank's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a date within 90 days of the filing date of this report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Bank's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Bank would be made known to them by others within the Bank, particularly during the period in which this quarterly report was being prepared. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) CHANGES IN INTERNAL CONTROLS There were no significant changes in the Bank's internal controls or in other factors that could significantly affect these internal controls subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions. As a result, no corrective actions were taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel to the Bank as to the current status of these claims or proceedings to which the Bank is a party, Management is of the opinion that the ultimate aggregate liability represented thereby if any, will not have a material adverse affect on the financial condition of the Bank. The Bank has been subject to a Consent Agreement with the FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(1) since April 14, 2002. The Consent Agreement addresses actions necessary to correct certain Bank Secrecy Act ("BSA") compliance deficiencies including inadequate training and internal controls, and ineffective independent testing of such controls, which deficiencies are alleged by the FDIC but not admitted to by the Bank. Even prior to entering into the Consent Agreement, the Bank began taking proactive steps in 2001 to improve its BSA compliance. For example, in late 2001, the Bank implemented an enterprise-wide risk management infrastructure, which includes a comprehensive compliance and training program. This step was taken with the assistance of a leading financial services consulting firm, The Secura Group, which the Bank retained in November 2001 to advise and assist the Bank in its compliance efforts. In addition, the Bank created a new senior executive position of Chief Risk Officer and hired this officer in May 2002 to enhance overall Risk Management processes. The Bank has also taken other steps to ensure the accuracy of the customer exemption process. Finally, to improve the overall efficiency and effectiveness of BSA monitoring, the Bank purchased a new automated BSA tracking/monitoring system which was installed in 2002 and is in the process of implementation. The Bank has experienced certain technical difficulties with respect to the integration of this software with the Bank's existing customer database information system, resulting in a delay in the Bank's ability to fully comply with certain requirements of the Consent Agreement. The Bank expects this system to be fully functional and to resolve these technical difficulties shortly, which should enable the Bank to satisfy one of the most critical requirements of the Consent Agreement. Until the new software is fully functional, the Bank is making every effort to implement alternative procedures for those aspects of compliance which will ultimately be achieved through the use of the computer tracking system. In addition, the Bank is in the process of improving its due diligence efforts to identify and monitor high-risk accounts, improve internal controls to assure the accuracy and completeness of internal reports, and intensify personnel training. The Board of Directors, Management, Officers, and employees of the Bank are fully committed to complying with all of the terms of the Consent Agreement, and the Bank has been working and will continue to work closely with the FDIC towards this end. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit

Exhibit Table Exhibit Table Reference Number Item Number - ---------------- ---- ------ 3.1 Articles of Incorporation, as Amended(1)......................... 3.2 2002 Amendment to Articles of Incorporation(2)................... 3.3 Bylaws, as Amended(1)............................................ 3.4 2001 Amendment to Bylaws(3)......................................

- --------------------------- (1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration Statement, as filed with the FDIC on June 12, 2000. (2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed with the FDIC on April 1, 2003. (3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as filed with the FDIC on April 20, 2001.

Exhibit Table Exhibit Table Reference Number Item Number - ---------------- ---- ------ 4.1 Specimen of Common Stock Certificate(1).......................... 10.1 2000 Stock Option Plan(1)........................................ 10.2 401(k) Plan(3)................................................... 10.3 Lease for Corporate Headquarters(1).............................. 10.4 Lease for Western Branch Office(1)............................... 10.5 Lease for Wilshire Branch Office(1).............................. 10.6 Lease for Downtown Branch Office(1).............................. 10.7 Lease for Van Nuys Branch Office(1).............................. 10.8 Lease for Torrance Branch Office(1).............................. 10.9 Lease for Rowland Heights Branch Office(1)....................... 11.1 Statement Regarding Computation of Earnings Per Share(4)......... 99.1 Certification of Chief Executive Officer and Chief Financial Officer(1).......................................................

(b) Reports on Form 8-K The Bank filed no report on Form 8-K during the first quarter of 2003. - ------------------------- (4) The information required by this exhibit is incorporated herein by reference from Note of the Bank's Financial Statements included herein. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this to report be signed on its behalf by the undersigned thereunto duly authorized. Pacific Union Bank Date: May 13, 2003 By /s/ Dianne Kim Dianne Kim Senior Vice President and Chief Financial Officer (Principal financial or accounting officer and duly authorized signatory) EX-99.3 5 v96038exv99w3.txt EXHIBIT 99.3 EXHIBIT 99.3 ================================================================================ FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 - -------------------------------------------------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 FDIC Certificate Number 21765 PACIFIC UNION BANK (Exact name of registrant as specified in its charter)

CALIFORNIA 95-2888370 State or other jurisdiction of incorporation or organization I.R.S. Employer Identification Number

3530 WILSHIRE BLVD. #1800 LOS ANGELES, CALIFORNIA 90010 Address of principal executive offices Zip Code (213) 385-0909 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report): Not applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [ ] Common stock, $6.00 par value, 10,667,975 shares outstanding as of August 11, 2003. ================================================================================ PACIFIC UNION BANK TABLE OF CONTENTS

Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets - June 30, 2003 and December 31, 2002 Statements of Operations - Three months and six months ended June 30, 2003 and 2002 Statements of Cash Flows - Six months ended June 30, 2003 and 2002 Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Certifications

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PACIFIC UNION BANK Balance Sheets As of June 30, 2003 and December 31, 2002 (Unaudited)

JUNE 30, 2003 DECEMBER 31, 2002 ------------- ----------------- ASSETS Cash and due from banks - demand $ 32,292,875 $ 24,054,519 Federal funds sold 11,800,000 62,500,000 Due from banks - interest-bearing 177,068 210,654 Federal Home Loan Bank Stock 3,626,600 3,537,800 Securities held-to-maturity, at amortized cost (fair value of $86,639,664 at June 30, 2003 and $90,798,966 at December 31, 2002) 85,225,522 89,313,683 Securities available-for-sale, at fair value 77,808,699 64,701,421 Loans receivable 778,827,859 683,131,191 Less allowance for loan losses (9,666,372) (8,872,995) --------------- --------------- Net loans receivable 769,161,487 674,258,196 --------------- --------------- Loans held for sale 3,557,700 -- Customers' acceptance liabilities 1,936,301 657,760 Bank premises and equipment, net 6,187,913 6,610,142 Accrued interest receivable 3,380,170 3,404,574 Deferred tax assets 5,099,556 4,663,046 Income taxes receivable 1,636,542 1,116,038 Other assets 2,493,435 1,967,404 --------------- --------------- Total assets $ 1,004,383,868 $ 936,995,237 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand, non-interest-bearing $ 251,860,813 $ 223,377,195 Demand, interest-bearing 7,754,628 7,602,024 Money market and savings 171,492,839 170,486,917 Time certificates of deposit: Less than $100,000 98,912,357 99,876,831 $100,000 or more 291,464,619 258,652,585 --------------- --------------- Total deposits 821,485,256 759,995,552 Other borrowed funds 70,000,000 70,000,000 Acceptance liabilities 1,936,301 657,760 Accrued interest payable 3,492,604 3,140,064 Other liabilities 1,432,132 2,325,902 --------------- --------------- Total liabilities 898,346,293 836,119,278 --------------- --------------- Stockholders' equity: Common stock, $6 par value. Authorized 30,000,000 shares; issued and outstanding 10,667,237 shares at June 30, 2003 and 10,621,554 shares at December 31, 2002 63,998,599 63,724,507 Capital surplus 22,295,969 22,174,825 Retained earnings 19,266,053 14,283,984 Accumulated other comprehensive income - unrealized gain on securities available-for-sale - net of taxes 476,954 692,643 --------------- --------------- Total stockholders' equity 106,037,575 100,875,959 --------------- --------------- Total liabilities and stockholders' equity $ 1,004,383,868 $ 936,995,237 =============== ===============

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK Statements of Operations For the Three and Six Months Ended June 30, 2003 and 2002 (Unaudited)

FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED 2003 2002 2003 2002 ----------- ---------- ----------- ----------- Interest income: Interest and fees on loans $10,700,691 9,048,150 $20,639,137 17,794,251 Dividend on Federal Home Loan Bank stock 37,008 7,688 80,128 30,515 Interest on securities held-to-maturity 744,729 38,983 1,637,114 38,983 Interest on securities available-for-sale 678,080 1,566,308 1,351,453 3,379,821 Interest on Federal funds sold 238,857 317,162 510,381 602,662 Other interest income 7,540 4,257 16,965 8,333 ----------- ---------- ----------- ----------- Total interest income 12,406,905 10,982,549 24,235,178 21,854,565 Interest expense: Demand - interest bearing 5,212 10,237 11,481 19,773 Savings and money market 654,084 621,662 1,232,532 1,185,989 Time certificates of deposit: Less than $100,000 658,353 762,594 1,378,705 1,573,919 $100,000 or more 1,509,673 1,463,150 2,918,992 3,036,104 Other borrowings 604,796 48,391 1,203,119 48,391 ----------- ---------- ----------- ----------- Total interest expense 3,432,118 2,906,034 6,744,829 5,864,178 Net interest income before provision for loan losses 8,974,787 8,076,514 17,490,349 15,990,387 Provision for loan losses 300,000 100,000 900,000 200,000 ----------- ---------- ----------- ----------- Net interest income after provision for loan losses 8,674,787 7,976,514 16,590,349 15,790,387 ----------- ---------- ----------- ----------- Other income: Service charges on deposit accounts 1,590,996 1,602,036 3,231,111 3,200,664 Remittance fees 245,514 239,426 461,320 452,913 Letter of credit related fees 206,919 209,772 398,727 403,100 Gain on sale of premises -- 1,193,797 -- 1,193,797 Gain on sale of loans 351,414 -- 780,406 -- Other operating income 423,131 364,539 884,537 897,288 ----------- ---------- ----------- ----------- Total other income 2,817,974 3,609,570 5,756,100 6,147,762 ----------- ---------- ----------- ----------- Other expenses: Salaries and employee benefits 3,510,686 2,924,851 6,742,671 5,817,712 Security guards 221,684 241,829 440,221 476,033 Net occupancy expense 698,455 729,518 1,395,553 1,451,175 Equipment expense 375,889 380,069 715,636 730,762 Data processing 494,726 511,060 966,108 959,208 Net other real estate owned expense -- -- -- 41 Office supplies 123,155 139,348 199,257 254,700 Legal and professional 236,904 274,691 415,160 692,612 Advertising and public relations 204,003 237,076 356,604 364,964 Communication related expense 254,320 249,540 517,056 492,077 Other operating expenses 749,864 572,727 1,405,492 1,073,748 ----------- ---------- ----------- ----------- Total other expenses 6,869,686 6,260,709 13,153,758 12,313,032 ----------- ---------- ----------- ----------- Income before income taxes 4,623,075 5,325,375 9,192,691 9,625,117 Income taxes 1,829,000 2,127,000 3,678,000 3,846,000 ----------- ---------- ----------- ----------- Net income $ 2,794,075 3,198,375 $ 5,514,691 5,779,117 =========== ========== =========== =========== Net income per share: Basic $ 0.26 0.30 $ 0.52 $ 0.54 Diluted $ 0.26 0.30 $ 0.52 $ 0.54 Weighted-average common shares outstanding: Basic 10,646,089 10,613,277 10,633,889 10,610,513 Diluted 10,711,173 10,708,605 10,700,269 10,700,262

See accompanying notes to financial statements PACIFIC UNION BANK Statements of Cash Flows For the Six Months Ended June 30, 2003 and 2002 (Unaudited)

06/30/2003 06/30/2002 ---------- ---------- Cash flows from operating activities: Net income $ 5,514,691 $ 5,779,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses 616,299 705,674 Provision for loan losses 900,000 200,000 Accretion of discount and amortization of premium on securities held-to-maturity, net (290,332) (5,506) Accretion of discount and amortization of premium on securities available-for-sale, net (656,118) 96,815 Net loss (gain) on disposal of Bank premises and equipment 9,943 (1,200,897) Gain on sale of loans (780,406) -- Origination of loans held for sale (12,974,299) -- Proceeds from sale of loans held for sale 13,913,727 -- Decrease (Increase) in accrued interest receivable 24,404 (326,140) Increase in prepaid income taxes (520,504) -- (Increase) decrease in deferred income taxes (280,001) 294,439 Increase in income taxes receivable -- (985,517) Stock dividend on Federal Home Loan Bank stock (88,800) (43,600) Increase in other assets (526,031) (449,165) Increase (decrease) in accrued interest payable 352,540 (1,828,013) (Decrease) increase in other liabilities (893,770) 665,369 ------------- ------------- Net cash provided by operating activities 4,321,343 2,902,576 ------------- ------------- Cash flows from investing activities: Proceeds from maturities and redemptions of securities held-to-maturity 29,343,627 -- Proceeds from maturities and redemptions of securities available-for-sale 55,041,083 37,497,386 Purchase of securities held-to-maturity (24,965,134) (45,419,151) Purchase of securities available-for-sale (67,864,441) (3,500,000) Proceeds from recoveries of written-off loans 299,637 76,854 Net increase in loans (99,819,651) (16,822,001) Purchases of Bank premises and equipment (204,013) (504,319) Proceeds from sale of Bank premises and equipment -- 3,575,300 ------------- ------------- Net cash used in investing activities (108,168,892) (25,391,825) ------------- ------------- Cash flows from financing activities: Net increase in demand deposits, non-interest-bearing 28,483,618 8,634,641 Net increase in demand deposits, interest-bearing 152,604 560,019 Net increase (decrease) in money market and savings deposits 1,005,922 (5,924,384) Net increase in time certificates of deposit 31,847,560 1,351,324 Proceeds from exercise of stock options 395,236 148,248 Cash dividend paid (532,623) -- Cash paid for fractional shares -- (425) Net increase in other borrowed funds -- 30,000,000 ------------- ------------- Net cash provided by financing activities 61,352,317 34,767,423 ------------- ------------- Net (decrease) increase in cash and cash equivalents (42,495,230) 12,574,068 Cash and cash equivalents at beginning of period 86,765,173 68,073,953 ------------- ------------- Cash and cash equivalents at end of period $ 44,269,943 80,648,021 ============= ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 6,392,288 7,692,191 Income taxes $ 5,450,000 4,330,000 ============= ============= Noncash investing and financing activities: Transfers of loan receivables to loans held for sale $ 3,557,000 -- Stock dividend $ -- 13,070,291

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Pacific Union Bank ("Bank") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United State of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 2. COMPREHENSIVE INCOME Comprehensive income consists of net income and net unrealized gain (loss) on securities available-for-sale. The comprehensive income amounted to $5.3 million, which included net income of $5.5 million and decrease in unrealized gain of $215,689, which is net of the tax effect of $156,509 for the six months ended June 30, 2003. The comprehensive income amounted to $6.6 million which included net income of $5.8 million and change in unrealized gain of $822,000, which is net of the tax effect of $804,000 for the six months ended June 30, 2002. 3. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation for the three months ended June 30, 2003 and 2002.

INCOME SHARES PER SHARE 2003 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- ------ Basic EPS - Income available to common stockholders $2,794,075 10,646,089 $ 0.26 Effect of Dilutive Securities - Options -- 65,084 -- ---------- ---------- -------- Diluted EPS - Income available to common stockholders $2,794,075 10,711,173 $ 0.26 ========== ========== ========

INCOME SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- ------ Basic EPS - Income available to common stockholders $3,198,375 10,613,277 $ 0.30 Effect of Dilutive Securities - Options -- 95,328 -- ---------- ---------- -------- Diluted EPS - Income available to common stockholders $3,198,375 10,708,605 $ 0.30 ========== ========== ========

The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation for the six months ended June 30, 2003 and 2002.

INCOME SHARES PER SHARE 2003 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- ------ Basic EPS - Income available to common stockholders $5,514,691 10,633,889 0.52 Effect of Dilutive Securities - Options -- 66,380 -- ---------- ---------- ---- Diluted EPS - Income available to common stockholders $5,514,691 10,700,269 0.52 ========== ========== ====

INCOME SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT - ---- ----------- ------------- ------ Basic EPS - Income available to common stockholders $5,779,117 10,610,513 $ 0.54 Effect of Dilutive Securities - Options -- 89,749 -- ---------- ---------- -------- Diluted EPS - Income available to common stockholders $5,779,117 10,700,262 $ 0.54 ========== ========== ========

4. CAPITAL TRANSACTIONS The Bank's outstanding number of shares was 10,667,237 at June 30, 2003. The Bank has declared a quarterly cash dividend of $0.05 per common share on July 24, 2003. The cash dividend will be paid on or about August 27, 2003 to all shareholders of record as of August 15, 2003. 5. STOCK OPTIONS Had compensation cost for the Bank's stock option plan been determined based on the fair values at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, the Bank's net income and earnings per share for the six months ended June 30, 2003 and June 30, 2002 would have been reduced to the pro forma indicated below.

FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002 ---=--------- ------------- ------------- ------------- Net Income: As reported $ 2,794,075 $ 3,198,375 $ 5,514,691 $ 5,779,117 Pro-forma 2,783,583 3,187,805 5,494,027 5,754,858 Earnings per share: As reported: Basic $ 0.26 $ 0.30 $ 0.52 $ 0.54 Diluted 0.26 0.30 0.52 0.54 Pro-forma: Basic $ 0.26 $ 0.30 $ 0.52 $ 0.54 Diluted 0.26 0.30 0.51 0.54

6. RECENT ACCOUNTING PRONOUNCEMENTS In November 2002, FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34, (FIN No. 45) was issued. FIN No. 45 clarifies requirements relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires that upon issuance of a guarantee, companies recognize a liability for the fair value of the obligation it assumes under that guarantee. The Company has adopted the annual disclosure provisions of FIN No. 45 in the year ended December 31, 2002 consolidated financial statements. The adoption of FIN 45 did not have a material impact on the Bank's financial statements. In October 2002, Statement of Financial Accounting No. 147, Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147 applies to all acquisitions of financial institutions except those between mutual enterprises. This Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. The provisions of this Statement relating to the application of the purchase method of accounting, was effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions of this Statement relating to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets were effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets were effective on October 1, 2002, with earlier application permitted. The adoption of FASB No. 147 did not have a material effect on the financial statements. In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation ( SFAS No. 123 ), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in not only annual, but also interim financial statements about the effect the fair value method would have had on reported results. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. It is anticipated that the financial impact of SFAS 148 will not have a material effect on the Bank. In January 2003, The Financial Accounting Standards Board (FASB or the "Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation addresses consolidation by business enterprises of variable interest entities and clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Certain disclosures are effective immediately. The adoption of FIN No. 46 is not expected to have a material effect on the financial statements. In April, 2003, The Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149") was issued. SFAS No. 149 clarifies and amends financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). In general, SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. It is anticipated that the financial impact of SFAS 149 will not have a material effect on the Bank. In May, 2003, Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150") was issued. FASB No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity that have been presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is anticipated that the financial impact of SFAS 150 will not have a material effect on the Bank. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis includes forward-looking statements regarding management's beliefs, projections and assumptions concerning future results and events. When used the words "anticipate", "believe", "estimate", "expect", and "intend" and words or phrases of similar meanings as they relate to the Bank or the Bank's management, are intended to identify forward-looking statements. These statements are not guarantees and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Bank to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, governmental policies and actions of regulatory agencies, costs associated with the Bank's future expansion, competition from other commercial banks and other competition and market and general economic factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which speak as of the date hereof. All forward-looking statements contained in this Form 10-Q are qualified in their entirety by this cautionary statement. The following discussion and analysis is intended to provide details of the results of operations of the Bank for the three months and six months ended June 30, 2003 and 2002 and financial condition at June 30, 2003 and at December 31, 2002. The following discussion should be read in conjunction with Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the Federal Deposit Insurance Corporation in particular as it relates to the critical accounting policies as discussed in item 14 of the Form 10-K/A. RESULTS OF OPERATIONS Net income for the quarter ended June 30, 2003 decreased by $404,300 or 12.6% to $2.8 million compared to $3.2 million for the same period in 2002 which included one time gain on sale of San Francisco premises of $1.2 million in June 2002. Diluted earnings per share decreased by 13.3% to $0.26 for the three months ended June 30, 2003 compared with $0.30 for the second quarter of 2002. Income before income tax expense amounted to $4.6 million for the second quarter of 2003, a decrease of $702,000 or 13.2% compared to $5.3 million for the same quarter a year ago. The annualized return on average assets ("ROA") and return on average stockholders' equity ("ROE") were 1.10% and 10.73%, respectively, for the second quarter of 2003, compared to 1.58% and 13.83%, respectively, for the same period of 2002. Net Income decreased by $ 264,000 or 4.6 % to $5.5 million for the six months ended June 30, 2003 compared to $5.8 million for the same period of 2002. Diluted earnings per share decreased to $0.52 for the six months ended June 30, 2003 compared to $0.54 for the same period of 2002. Income before income tax expense amounted to $9.2 million and $9.6 million, respectively, for the six months ended June 30, 2003 and 2002. The annualized ROA and ROE for the first six months ended June 30, 2003 were 1.11% and 10.72%, respectively, compared to 1.43% and 12.70%, respectively, for the same period of 2002. NET INTEREST INCOME The Bank's primary source of income is net interest income, which is the difference between interest income from interest-bearing assets and interest paid on interest-bearing liabilities, such as deposits and other borrowings used to fund those assets. The Bank's net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yield earned on interest-earning assets and rates paid on interest-bearing liabilities. The Bank also generates non-interest income, including the service charges on deposit accounts and other transactional fees. The Bank's non-interest expenses consist primarily of personnel, occupancy and equipment expense and other operating expenses. The Bank's results of operations are affected by its provision for loan losses and may also be significantly affected by other factors including general economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory agencies. Net interest income before the provision for the loan losses increased by $898,000 or 11.1% to $9.0 million in the second quarter of 2003, compared to $8.1 million in the same quarter of 2002. Total interest income increased by $1.4 million or 13.0% to $12.4 million in the second quarter of 2003, compared to $11.0 million in the same quarter of 2002 primarily due to an increase of $1.7 million in interest and fees on loans and partially offset by a $182,000 decrease in interest on investment securities. The increase in interest income is contributed by the average volume increase of $192.5 million in interest earning-assets to $972.5 million in the second quarter of 2003 from $763.3 million in the same quarter of 2002. The major increase of the interest earning-assets is contributed by the average loan growth of $173.3 million or 30.4% to $743.9 million in the second quarter of 2003 compared to $570.6 million for the corresponding quarter of 2002. The yield on average interest earning-assets was 5.05% in the second quarter of 2003 compared to 5.70% in the same quarter of 2002. Offsetting the increase in average net loans, the yield on average loans including loans held for sale decreased by 58 basis points to 5.69% in the second quarter of 2003 from 6.27% in the same quarter of 2002, which negatively affected the loan interest income. Total interest expense increased by $526,000 or 18.1% to $3.4 million for the second quarter of 2003 compared to $2.9 million for the same quarter of 2002. The increase is mainly due to an increased interest expense of $556,000 from Federal Home Loan Bank borrowings in the second quarter of 2003 compared to zero for the correspondent quarter of 2002. Average money market deposits increased $64.4 million or 58.8% to $173.8 million in the second quarter of 2003 compared with $109.4 million for the corresponding period of 2002. The cost of money market deposits decreased 46 basis points to 1.44% for the second quarter of 2003 from 1.99% for the corresponding period of 2002. Average time certificates of deposit of $100,000 or more increased $30.9 million or 12.9% to $270.7 million in the second quarter of 2003 compared with $239.8 million for the corresponding period of 2002. The cost on average time certificates of deposit of $100,000 or more decreased 21 basis points to 2.24% in the first quarter of 2003 from 2.45% in the corresponding quarter of 2002. The cost of funds decreased 11 basis points to 1.52% in the second quarter of 2003 compared with 1.63% in the same quarter of 2002. Net interest income before provision for loan losses increased $1.5 million or 9.4% to $17.5 million for the six months ended June 30, 2003 compared to $16.0 million for the same period of 2002. Total interest income increased by $2.4 million or 10.9% to $24.2 million for the six months ended June 30, 2003 compared with $21.9 million in the same period in 2002. The increase in total interest income was primarily due to a $2.8 million increase in interest on loans and partially offset by a $430,000 decrease in interest on investment securities. The average net loans including loans held for sale for the first six months of 2003 increased by $153.9 million to $717.9 million compared with $564.0 million for the same period of 2002. Total interest expense increased by $881,000 or 15.0% to $6.7 million for the six months ended June 30, 2003, compared with $5.9 million for the corresponding period of 2002. The increase was primarily attributable to a $1.2 million increase in interest on Federal Home Loan Bank advances. The average balance of Federal Home Loan Bank advances increased to $70.0 million in the first six months of 2003 compared to zero in the same period of 2002. NET INTEREST MARGIN Net interest margin decreased by 54 basis points or 12.77% to 3.69% for the second quarter of 2003 compared to 4.23% for the corresponding period of 2002. The decrease in net interest margin was primarily attributable to the decrease in the average interest-earning assets yield of 65 basis points to 5.05% in the second quarter of 2003 compared with 5.70% in the same quarter of 2002. The decrease in the average interest-earning assets yield was offset by the cost of funds decrease of 11 basis points to 1.52% in the second quarter of 2003 from 1.63% in the corresponding quarter of 2002. Net interest margin decreased by 53 basis points or 12.62% to 3.67% for the six months ended June 30, 2003 compared to 4.20% for the corresponding period of 2002. The decrease in net interest margin was primarily attributable to the decrease in the average interest-earning assets yield of 66 basis points to 5.06% in the second quarter of 2003 compared with 5.72% in the same quarter of 2002. The decrease in the average interest-earning assets yield was offset by the cost of funds decrease of 11 basis points to 1.52% in the second quarter of 2003 from 1.63% in the corresponding quarter of 2002. The following table presents condensed average balance sheet information for the Bank, together with interest rates earned and paid on the various sources and uses of funds for each of the periods indicated: DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME

For the Three Months Ended June 30, 2003 -------------------------------------------------------- Average % to Average Income/ Rate/ Earning Balance Expense Yield(35) Assets -------------------------------------------------------- ASSETS: Interest-earning assets: Loans, net(36) $ 743,907 $ 10,701 5.69% 76.49% Federal Home Loan Bank stock 3,604 37 4.11% 0.37% Taxable investment securities(37) U.S. Treasury Securities 3,751 23 2.45% 0.39% U.S. Governmental Agencies 137,111 1,400 4.08% 14.10% Tax-exempt Investment Securities: State & Municipal Obligation 0 0 Federal funds sold 80,833 239 1.17% 8.31% Interest-earning deposits 3,300 7 0.85% 0.34% ----------- ----------- ----------- Total interest-earning assets 972,506 12,407 5.05% 100.00% ----------- ----------- ----------- Non-interest-earning assets: Cash and due from banks 23,655 Premises and equipment, net 6,273 Other real estate owned 0 Customers' acceptance liabilities 1,611 Accrued interest receivable 3,220 Other assets 9,569 ----------- Total non-interest-earning assets 44,328 ----------- Total assets $ 1,016,834 =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 173,779 $ 625 1.44% Super NOW 7,411 5 0.27% Savings 46,127 29 0.25% Time certificates of deposit of $100,000 or more 270,693 1,510 2.24% Other time certificates of deposit 105,720 658 2.50% Other borrowings 70,000 605 3.42% ----------- ----------- Total interest-bearing liabilities 673,730 3,432 2.04% ----------- ----------- Non-interest-bearing liabilities: Demand deposits 231,786 Other liabilities 7,206 ----------- Total non-interest-bearing liabilities 238,992 1.52% ----------- Stockholders' equity 104,112 ----------- Total liabilities and stockholders' equity $ 1,016,834 =========== Net interest income $ 8,975 =========== Net interest spread(38) 3.01% =========== Annualized net interest margin(39) 3.69% =========== Ratio of average interest-bearing assets to average interest-bearing liabilities 144.35% ===========

For the Three Months Ended June 30, 2002 -------------------------------------------------------- Average % to Average Income/ Rate/ Earning Balance Expense Yield(1) Assets -------------------------------------------------------- ASSETS: Interest-earning assets: Loans, net(36) $ 570,632 9,048 6.27% 74.76% Federal Home Loan Bank stock 1,536 8 2.08% 0.20% Taxable investment securities(37) U.S. Treasury Securities 1,475 22 5.97% 0.19% U.S. Governmental Agencies 113,282 1,581 5.58% 14.84% Tax-exempt Investment Securities: State & Municipal Obligation 197 2 4.06% 0.03% Federal funds sold 74,990 317 1.67% 9.83% Interest-earning deposits 1,142 4 1.40% 0.15% ----------- ----------- ----------- Total interest-earning assets 763,254 10,982 5.70% 100.00% ----------- ----------- ----------- Non-interest-earning assets: Cash and due from banks 28,925 Premises and equipment, net 8,548 Other real estate owned 0 Customers' acceptance liabilities 1,243 Accrued interest receivable 3,271 Other assets 5,198 ----------- Total non-interest-earning assets 47,185 ----------- Total assets $ 810,439 =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 109,402 $ 543 1.99% Super NOW 7,070 10 0.57% Savings 42,158 79 0.75% Time certificates of deposit of $100,000 or more 239,822 1,463 2.45% Other time certificates of deposit 100,172 763 3.06% Other borrowings 5,084 48 3.74% ----------- ----------- Total interest-bearing liabilities 503,708 2,906 2.31% ----------- ----------- Non-interest-bearing liabilities: Demand deposits 209,264 Other liabilities 4,991 ----------- Total non-interest-bearing liabilities 214,255 1.63% ----------- Stockholders' equity 92,476 ----------- Total liabilities and stockholders' equity $ 810,439 =========== Net interest income $ 8,076 =========== Net interest spread(38) 3.39% =========== Annualized net interest margin(39) 4.23% =========== Ratio of average interest-bearing assets to average interest-bearing liabilities 151.53% ===========

- ---------- (35) Average rates/yields for these periods have been annualized. (36) Loan includes loans held for sale and net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $769,161 and $579,432 at June 30, 2003 and 2002. (37) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (38) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (39) Represents net interest income as a percentage of average interest-earning assets. DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME

For the Six Months Ended June 30, 2003 -------------------------------------------------------- Average % to Average Income/ Rate/ Earning Balance Expense Yield(40) Assets -------------------------------------------------------- ASSETS: Interest-earning assets: Loans, net(41) $ 717,856 $ 20,639 5.72% 75.30% Federal Home Loan Bank stock 3,571 80 4.48% 0.37% Taxable investment securities(42) U.S. Treasury Securities 3,050 41 2.69% 0.32% U.S. Governmental Agencies 140,542 2,948 4.20% 14.74% Tax-exempt Investment Securities: State & Municipal Obligation 0 0 Federal funds sold 84,575 510 1.20% 8.87% Interest-earning deposits 3,697 17 0.93% 0.39% ----------- ----------- ----------- Total interest-earning assets 953,291 24,235 5.03% 100.00% ----------- ----------- ----------- Non-interest-earning assets: Cash and due from banks 23,798 Premises and equipment, net 6,387 Other real estate owned 0 Customers' acceptance liabilities 1,106 Accrued interest receivable 3,214 Other assets 9,517 ----------- Total non-interest-earning assets 44,022 ----------- Total assets $ 997,313 =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 165,320 $ 1,176 1.43% Super NOW 7,563 11 0.29% Savings 45,752 57 0.25% Time certificates of deposit of $100,000 or more 262,790 2,919 2.24% Other time certificates of deposit 106,640 1,379 2.61% Other borrowings 70,015 1,203 3.42% ----------- ----------- Total interest-bearing liabilities 673,730 6,745 2.07% ----------- ----------- Non-interest-bearing liabilities: Demand deposits 229,508 Other liabilities 6,842 ----------- Total non-interest-bearing liabilities 236,350 1.53% ----------- Stockholders' equity 102,883 ----------- Total liabilities and stockholders' equity $ 997,313 =========== Net interest income $ 17,490 =========== Net interest spread(43) 2.99% =========== Annualized net interest margin(44) 3.67% =========== Ratio of average interest-bearing assets to average interest-bearing liabilities 144.86% ===========

For the Six Months Ended June 30, 2002 -------------------------------------------------------- Average % to Average Income/ Rate/ Earning Balance Expense Yield(1) Assets -------------------------------------------------------- ASSETS: Interest-earning assets: Loans, net(41) $ 563,966 917,794 6.28% 74.12% Federal Home Loan Bank stock 1,524 30 3.94% 0.20% Taxable investment securities(42) U.S. Treasury Securities 1,492 45 6.03% 0.20% U.S. Governmental Agencies 120,815 3,370 5.58% 15.88% Tax-exempt Investment Securities: State & Municipal Obligation 198 4 3.88% 0.03% Federal funds sold 71,744 603 1.67% 9.43% Interest-earning deposits 1,102 8 1.46% 0.14% ----------- ----------- ----------- Total interest-earning assets 760,841 21,854 5.72% 100.00% ----------- ----------- ----------- Non-interest-earning assets: Cash and due from banks 26,985 Premises and equipment, net 8,928 Other real estate owned 0 Customers' acceptance liabilities 915 Accrued interest receivable 3,332 Other assets 4,731 ----------- Total non-interest-earning assets 44,891 ----------- Total assets $ 805,732 =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 111,484 $ 1,029 1.86% Super NOW 7,093 20 0.57% Savings 42,255 159 0.75% Time certificates of deposit of $100,000 or more 239,695 3,036 2.55% Other time certificates of deposit 101,909 1,574 3.11% Other borrowings 2,556 48 3.74% ----------- ----------- Total interest-bearing liabilities 504,992 5,864 2.34% ----------- ----------- Non-interest-bearing liabilities: Demand deposits 204,112 Other liabilities 5,613 ----------- Total non-interest-bearing liabilities 209,725 1.67% ----------- Stockholders' equity 91,015 ----------- Total liabilities and stockholders' equity $ 805,732 =========== Net interest income $ 15,990 =========== Net interest spread(43) 3.38% =========== Annualized net interest margin(44) 4.20% =========== Ratio of average interest-bearing assets to average interest-bearing liabilities 150.66% ===========

- ---------- (40) Average rates/yields for these periods have been annualized. (41) Loan includes loans held for sale and net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $769,161 and $579,432 at June 30, 2003 and 2002. (42) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (43) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (44) Represents net interest income as a percentage of average interest-earning assets. The following table sets forth, for the years 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 changes in average daily balances (volume) or changes in interest rates (rate). The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each:

FOR THE SIX MONTH ENDED JUNE 30, 2003 VS. 2002 INCREASES (DECREASES) DUE TO CHANGE IN VOLUME RATE(1) TOTAL ------- ------- ------- (DOLLARS IN THOUSANDS) EARNING ASSETS: INTEREST INCOME: $ 4,530 (1,685) 2,845 Loans, net(2)............................ Federal Home Loan Bank stock............. 45 5 50 Taxable investment securities: U. S. Treasury securities............ 30 (34) (4) U. S. Government agencies............ 496 (918) (422) Tax-exempt securities:(3) State and Municipal Obligation....... (4) - (4) Federal funds sold....................... 96 (189) (93) Interest-earning deposits................ 13 (4) 9 ------- ------- ------- Total net change in interest income.......... $ 5,206 ($2,825) $ 2,381 ------- ------- ------- DEPOSITS AND BORROWED FUNDS: INTEREST EXPENSE: Money market deposits.................... 420 (273) 147 Super NOW................................ 1 (10) (9) Savings deposits......................... 12 (112) (100) Time certificates of deposit in denominations of $100,000 or more............................. 277 (394) (117) Other time deposits...................... 70 (265) (195) Other borrowings......................... 1,159 (4) 1,155 ------- ------- ------- Total net change in interest expense......... 1,939 (1,058) 881 ------- ------- ------- Change in net interest income................. $ 3,267 ($1,767) $ 1,500 ======= ======= =======

PROVISION FOR LOAN LOSSES Provisions for loan losses are made monthly, to cover incurred losses as a result of credit risks. Credit risk is inherent in making loans. The Bank sets aside an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as the provision for loan losses. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in Management's judgment is adequate to absorb incurred losses inherent in the Bank's loan portfolio. For the second quarter of 2003 the provision for loan losses amounted to $300,000 compared with $100,000 in the corresponding period of 2002. The Provision for loan losses amounted to $900,000 for the six months ended June 30, 2003 compared with $200,000 for the same period of 2002. The increase was mainly attributable to a strong loan growth in the second quarter of 2003. On a quarterly basis, management performs an analysis of the adequacy of the allowance for loan losses. The results of this analysis for the quarter ended June 30, 2003 determined that the allowance was adequate to cover losses inherent in the portfolio. The procedures for monitoring the adequacy of the - -------------- (1) Rates for these periods on which calculations are based have been annualized. (2) Loan fees net of direct cost have been included in the calculation of interest income. Loan fees were $384,000 and $279,000 for the six months ended June 30, 2003 and 2002, respectively. Loans are net of the allowance for loan losses, deferred fees and related direct costs. (3) Yields on tax-exempt income have not been computed on a tax equivalent basis, because the percentage of tax-exempt securities is minimal. allowance, as well as detailed information concerning the allowance itself, are included below under "Allowance for loan losses." NON-INTEREST INCOME Non-interest income decreased $792,000 or 21.93% to $2.8 million in the second quarter of 2003 compared to $3.6 million in the same quarter of 2002. The decrease resulted mainly from a $1.2 million gain recognized from the sale of San Francisco premises in the second quarter of 2002 and was partially offset by an increase of $351,000 on the sale of SBA loans in the second quarter of 2003. The other operating income increased by $59,000. The other operating income consists of credit card related fees, mortgage loan related fees, merchant discount fees, remittance and cable fees and other various fees. Non-interest income decreased $392,000 or 6.38% to $5.8 million in the six months of 2003 compared to $6.1 million in the same period of 2002. The decrease resulted mainly from a $1.2 million gain recognized from the sale of San Francisco premises during the first half of 2002 and was partially offset by an increase of $780,000 on the sale of SBA loans in the same period of 2003. The Bank is planning to continue to originate and sell the guaranteed portion of SBA loans in 2003. The following table sets forth the various components of the Bank's non-interest income for the periods indicated: NON-INTEREST INCOME

(Dollars in thousands) Three Months Ended Increase (Decrease) ------------------- -------------------- 06/30/03 06/30/02 Amount Percent(%) -------- -------- -------- -------- Service charges on deposit accounts $ 1,591 $ 1,602 $ (11) (0.69)% Remittance fees 246 239 7 2.93 Letter of credit related fees 207 210 (3) (1.43) Gain on sale of loans 351 -- 351 NMV Gain on sale of premise -- 1,194 (1,194) NMV Other operating income 423 365 58 15.89 -------- -------- -------- -------- Total $ 2,818 $ 3,610 $ (792) 21.94% ======== ======== ======== ========

Six Months Ended Increase (Decrease) ------------------- -------------------- 06/30/03 06/30/02 Amount Percent(%) -------- -------- -------- -------- Service charges on deposit accounts $ 3,231 $ 3,201 $ 30 0.94% Remittance fees 461 453 8 1.77 Letter of credit related fees 399 403 (4) 0.99 Gain on sale of loans 780 -- 780 NMV Other operating income 885 897 (12) (1.34) Gain on sale of premises -- 1,194 (1,194) NMV -------- -------- -------- -------- Total $ 5,756 $ 6,148 $ (392) 6.38% ======== ======== ======== ========

NON-INTEREST EXPENSE Non-interest expense increased by $609,000 or 9.73% to $6.9 million in the second quarter of 2003, compared to $6.3 million in the corresponding quarter of 2002. The increase is mainly attributable to an increase of $586,000 in salaries and employee benefits and a $177,000 increase in other expenses offset by decreases in legal and professional expenses by $38,000 and advertising and public relations by $33,000. An increase in salaries and employee benefits was mainly attributable to the increase in number of employees, medical expenses and annual bonus accrual for 2003. The decrease in the legal and professional expenses was mainly due to reduced consulting expenses associated with an enterprise-wide risk management implementation which peaked in early 2002. Other operating expenses consist of other loan related expenses, regulatory assessment expenses, employee related fees and other outside fees. The efficiency ratio for the second quarter of 2003 was 58.25% compared to 53.57% for the corresponding quarter of 2002. Non-interest expense increased by $841,000 or 6.83% to $13.2 million for the six months ended June 30, 2003, compared to $12.3 million in the corresponding period of 2002. The increase is mainly attributable to an increase of $925,000 in salaries and employee benefits and an increase of $332,000 in other operating expenses. The increase in salaries and employee benefits mainly resulted from the increases in number of employees, medical expenses and annual bonus accrual for 2003. The efficiency ratio for the six months of 2003 was 56.58% compared to 55.62% for the corresponding period of 2002. The following table presents the components of the non-interest expense with the amount and percentage changes for the periods indicated:

NON-INTEREST EXPENSE (Dollars in thousands) Three Months Ended Increase / (Decrease) ------------------- -------------------- 06/30/03 06/30/02 Amount Percent (%) -------- -------- -------- -------- Salaries and employee benefits $ 3,511 $ 2,925 $ 586 20.03% Security guards 222 242 (20) (8.33) Net occupancy expense 698 729 (31) (4.25) Equipment expense 376 380 (4) (1.10) Data processing 495 511 (16) (3.20) Office supplies 123 139 (16) (11.62) Legal and professional 237 275 (38) (13.76) Advertising and public relations 204 237 (33) (13.95) Communication expenses 254 250 5 1.92 Other operating expenses 750 573 177 30.93 -------- -------- -------- -------- Total $ 6,870 $ 6,261 $ 609 9.73% ======== ======== ======== ========

Six Months Ended Increase / (Decrease) ------------------- -------------------- 06/30/03 06/30/02 Amount Percent (%) -------- -------- -------- -------- Salaries and employee benefits $ 6,743 $ 5,818 $ 925 15.90% Security guards 440 476 (36) (7.52) Net occupancy expense 1,396 1,451 (55) (3.79) Equipment expense 716 731 (15) (2.07) Data processing 966 959 7 0.72 Office supplies 199 255 (55) (21.77) Legal and professional 415 693 (278) (40.06) Advertising and public relations 357 365 (8) (2.29) Communication related expense 517 492 25 5.08 Other operating expenses 1,405 1,073 332 30.94 -------- -------- -------- -------- Total $ 13,154 $ 12,313 $ 841 6.83% ======== ======== ======== ========

INCOME TAX The effective tax rate for the six months ended June 30, 2003 was 40.01% compared to 39.96% for the same period of 2002. The Bank files its California tax return using the Water's Edge Unitary method. When computing its California franchise tax liability, the California law requires that the Bank consider the taxable income allocated from estimated combined net taxable income using the apportionment factor of property, payroll and revenues over combined property, payroll and revenue of its foreign-owned majority shareholder. FINANCIAL CONDITION The Bank's total assets were $1.0 billion at June 30, 2003, an increase of $67.4 million or 7.19% from the $937.0 million at December 31, 2002. The net increase is attributable to a $98.5 million or 14.6% increase in net loans including loans held for sale, a $8.2 million or 34.25% increase in cash and due from banks offset by a decrease in Federal funds sold of $50.7 million or 81.12%. Total deposits increased by $61.5 million or 8.09% to $821.5 million at June 30, 2003 from $760.0 million at December 31, 2002. The non-interest bearing deposits increased $28.5 million or 12.75% and time certificates of deposit of $100,000 or more increased $32.8 million or 12.68% during the first six months of 2003 from December 31, 2002. Money market deposits and savings deposits increased $1.0 million or 0.59% in the six months of 2003 compared with the same period of 2002. The Bank's borrowings from Federal Home Loan Bank were at a $70.0 million at June 30, 2003 and December 31, 2002. Stockholders' equity increased $5.2 million or 5.12% to $106.0 million at June 30, 2003 from $100.9 million at December 31, 2002. INTEREST-EARNING ASSET MIX Total earning assets amounted to $951.4 million at June 30, 2003, compared with $894.5 million at December 31, 2002, representing an increase of $56.9 million or 6.36%. The composition of the earning assets changed slightly at June 30, 2003 compared with December 31, 2002. The net loans as a percentage of total earning assets increased 5.84% to 81.22% and the percentage of Federal funds sold to the total earning assets decreased 5.75% to 1.24% at June 30, 2003 compared to December 31, 2002. On an average basis, interest-earning assets amounted to $972.5 million, an increase of $209.2 million or 27.40% for the three months ended June 30, 2003 compared to $763.3 million for the same period of 2002. On an average basis, interest-earning assets amounted to $953.3 million, an increase of $192.5 million or 25.30% for the first six months of 2003 compared to $760.8 million for the same period of 2002. The table below shows the changes in the earning asset mix as of the dates indicated:

(Dollars in thousands) As of 06/30/03 As of 12/31/02 --------------------- ------------------- Types of earning assets Amount Percent(%) Amount Percent(%) -------- ---------- -------- -------- Federal funds sold $ 11,800 1.24% $ 62,500 6.99% Federal Home Loan Bank stock 3,627 0.38 3,538 0.40 Securities held-to-maturity 85,225 8.96 89,314 9.98 Securities available-for-sale 77,809 8.18 64,701 7.23 Net loans 772,719 81.22 674,258 75.38 Interest-bearing deposits 177 0.02 211 0.02 -------- ---------- -------- -------- Total earning assets $951,357 100.00% $894,522 100.00% ======== ========== ======== ========

SECURITIES The Bank classifies its securities as held-to-maturity or available-for-sale. The securities classified as held-to-maturity are those that the Bank has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. The securities that could be sold in response to changes in interest rate, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available-for-sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax as a component of comprehensive income. As of June 30, 2003, the Bank had a net unrealized gain of $824,000 on its available-for-sale portfolio. Accumulated other comprehensive loss for the first six months of 2003 was $216,000 representing the net unrealized loss, net of tax. The total investment securities increased $9.0 million or 5.86% to $163.0 million at June 30, 2003 from $154.0 million at December 31, 2002. During the second quarter of 2003, available-for-sale securities and held-to-maturity securities were purchased in the amount of $58.2 million. The following table summarizes the amortized cost, fair value and distribution of the Bank's investment securities as of the dates indicated: INVESTMENT PORTFOLIO (Dollars in thousands)

As of 06/30/03 As of 12/31/02 ------------------- ------------------- Amortized Fair Amortized Fair Cost Value Cost Value --------- -------- --------- -------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ 1,002 $ 1,055 $ 1,003 $ 1,074 U.S. Government agencies 25,730 25,959 25,996 26,290 Mortgage-backed securities (1) 47,649 48,146 34,000 34,730 State and political subdivision 2,604 2,649 2,507 2,607 -------- -------- -------- -------- Total available-for-sale $ 76,985 $ 77,809 $ 63,506 $ 64,701 ======== ======== ======== ======== HELD-TO-MATURITY: Mortgage-backed securities (1) 85,225 86,640 89,314 90,799 -------- -------- -------- -------- Total held-to-maturity 85,225 86,640 89,314 90,799 -------- -------- -------- -------- Total investment securities $162,210 $164,449 $152,820 $155,500 ======== ======== ======== ========

- ------------ (1) Principal balance may be prepaid before contracted maturity date. INVESTMENT MATURITIES AND REPRICING SCHEDULE (Dollars in thousands) As of June 30, 2003

After One But After Five but Within One Year Within Five Years Within Ten Years --------------------- --------------------- --------------------- Amount Yield (1) Amount Yield (1) Amount Yield (1) --------- --------- --------- --------- --------- --------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ - - $ 1,055 5.82% $ - -% U.S. Government agencies 6,035 5.94 19,924 2.91 - - Mortgage-backed securities (2) 17,016 5.65 8,135 5.93 5,175 2.98 State and political subdivisions 1,506 6.13 1,042 6.17 101 3.00 --------- --------- --------- --------- --------- --------- Total available-for-sale $ 24,557 5.68% $ 30,156 5.27% $ 5,276 2.99% ========= ========= ========= ========= ========= ========= HELD-TO-MATURITY: Mortgage-backed securities (2) - - 75,078 4.59 - - --------- --------- --------- --------- --------- --------- Total held-to-maturity - - 75,078 4.59 - - --------- --------- --------- --------- --------- --------- Total investment securities $ 24,557 5.68% $ 105,234 4.96% $ 5,276 2.99% ========= ========= ========= ========= ========= =========

After Ten Years Total --------------------- ---------------------- Amount Yield (1) Amount Yield (1) --------- --------- --------- --------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ - -% $ 1,055 5.82% U.S. Government agencies - - 25,959 3.92 Mortgage-backed securities (2) 17,820 4.77 48,146 5.58 State and political subdivisions - - 2,649 5.36 --------- --------- --------- --------- Total available-for-sale $ 17,820 4.77% $ 77,809 5.43% ========= ========= ========= ========= HELD-TO-MATURITY: Mortgage-backed securities (2) 10,147 3.30 85,225 4.44 --------- --------- --------- --------- Total held-to-maturity 10,147 3.30 85,225 4.44 --------- --------- --------- --------- Total investment securities $ 27,967 4.81% $ 163,03 5.25% ========= ========= ========= =========

- ------------- (3) Yield on tax-exempt obligations has not been computed on a tax equivalent basis because the percentage of tax-exempt securities is minimal. (4) The mortgage-backed securities reflect stated maturities and repricing schedule and not anticipated prepayments. LOANS The Bank experienced strong loan growth in the first six months of 2003. The Bank achieved record loan production of $218.6 million during the first six months of 2003 resulting in a $99.3 million increase in gross loans to $782.4 million at June 30, 2003 from $683.1 million at December 31, 2002. Total commercial and industrial loans increased $14.7 million or 11.71% to $140.0 million at June 30, 2003 from $125.4 million at December 31, 2002. Commercial real estate loans increased $81.1 million or 20.48% and residential mortgage loans decreased $10.2 million or 27.27% during the first six months of 2003. The following table sets forth the composition of the Bank's loan portfolio as of the dates indicated: LOAN PORTFOLIO COMPOSITION (Dollars in thousands)

As of 06/30/03 As of 12/31/02 ------------------- ------------------- Percent Percent Amount of Total Amount of Total -------- -------- -------- -------- Commercial and industrial $140,045 17.90% $125,363 18.35% Installment loans 20,199 2.58 21,225 3.11 Real estate loans: Commercial 476,877 60.95 395,807 57.94 Residential mortgage 27,245 3.48 37,459 5.48 Home equity 6,404 0.82 5,993 0.88 SBA 77,087 9.85 74,560 10.91 Other (1) 3,387 0.43 3,619 0.53 Trade Finance 13,798 1.77 12,488 1.83 Bills Bought 17,344 2.22 6,617 0.97 -------- -------- -------- -------- Total gross loans (2) $782,386 100.00% $683,131 100.00% ======== ====== ======== ========

- ------------------ (1) Consists predominantly of credit card loans. (2) Net of unearned income and participation loans sold. NON-PERFORMING ASSETS Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans and OREO. Total non-performing assets at June 30, 2003 decreased $541,000 to $1.5 million, compared with December 31, 2002. Total non-performing assets were 0.19% of total assets at June 30, 2003, compared to 0.30 % of total assets at December 31, 2002. The majority balance of the non-accrual home mortgage loans represented a single commercial loan secured by the business owners' home of $696,000 at June 30, 2003 which the Bank anticipates a full collection. As of June 30, 2003, the Bank had no OREO. The non-performing loan coverage ratio, defined as the allowance for loan losses to non-performing loans, increased to 659.80% as of June 30, 2003 from 437.96% at December 31, 2002. The following table provides information with respect to the components of the Bank's non-performing assets as of the dates indicated.

NON-PERFORMING ASSETS (Dollars in thousands) 6/30/2003 12/31/2002 6/30/2002 ---------- ---------- ---------- NON-ACCRUAL LOANS: Commercial and industrial $ 413 $ 1,091 $ 1,302 Installment loans 45 28 5 Real estate loans: Commercial - - 2,314 Home mortgage 798 805 864 Home equity - - 123 SBA 159 - 162 Other 1 - 4 Trade Finance - 74 58 Bills Bought - - - ---------- ---------- ---------- Total $ 1,416 $ 1,998 $ 4,832

(Table continues on the following page.)

6/30/2003 12/31/2002 6/30/2002 ---------- ---------- ---------- LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING (AS TO PRINCIPAL OR INTEREST): Commercial and industrial $ - $ - $ - Installment loans - - - Real estate loans: Commercial - - - Home mortgage - - - Home equity - - - SBA Other 49 28 49 Trade Finance - - - Bills Bought - - - ---------- ---------- ---------- Total $ 49 $ 28 $ 49 ---------- ---------- ---------- Total non-performing loans $ 1,465 $ 2,026 $ 4,881 Other real estate owned - - - Total non-performing assets $ 1,465 $ 2,026 $ 4,881 ========== ========== ========== Non-performing loans as a percentage of total gross loans 0.19% 0.30% 0.83% Non-performing assets as a percentage of total gross loans and other real estate owned 0.19% 0.30% 0.83%

ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $9.7 million or 1.24% of total loans as of June 30, 2003 compared to $8.9 million or 1.30% of total loans at December 31, 2002. The following table presents information relating to the allowance for loan losses for the periods indicated:

(Dollars in thousands) YTD YTD YTD 06/30/03 12/31/02 06/30/02 -------- -------- -------- ALLOWANCE FOR LOAN LOSSES: Balance at beginning of period $ 8,873 $ 9,467 $ 9,467 Provision for loan losses 900 1,100 200 Loans charged-off (407) (1,805) (949) Recoveries of charged-off loans 300 111 77 -------- -------- -------- Balance at end of period $ 9,666 $ 8,873 $ 8,795 ======== ======== ======== RATIOS: Net loan charge-offs to average total loans 0.03% 0.28% 0.30% Provision for loan losses to average total loans 0.25 0.18 0.07 Allowance for loan losses to gross loans at end of period 1.24 1.30 1.50 Allowance for loan losses to total non-performing loans 659.80 437.96 180.20 Net loan charge-offs to allowance for loan losses at end of period 2.21 19.10 19.85 Net loan charge-offs to provision for loan losses 11.85 154.05 436.48

In determining the allowance for loan losses, management continues to assess the risk inherent in the loan portfolio, the possible impact of known and potential problem loans, and other factors such as portfolio composition, loan concentration, and trends in local economic conditions. The Bank formally assesses its allowance for loan losses on a quarterly basis. The allowance for loan losses begins with Management reviewing each individual classified and criticized loan in detail, and evaluating, among other things, the adequacy of collateral, payment record, current loan status and borrowers' financial capacity. A loan loss allowance is assigned to each impaired loan. Loans categorized as impaired from this quarterly allocation of loan loss allowance are based upon the specifics of the loans' circumstances, including updated collateral value, borrowers' or guarantors' financial capacity, payment record and recent conversations with the borrower. Additionally, each quarter the Bank updates its twelve-quarter loss migration analysis for its commercial loan pool, six-quarter loss migration analysis for its homogeneous loan pool and four-quarter loss migration analysis for its credit card loan pool to drive the rolling respective loan loss experience percentages. These loan pools are assigned an appropriate allowance factor based upon the Bankss.s historical charge off experience, other factors, and then accounts for qualitative adjustments that take into consideration current conditions. The allowance is maintained at a level the Bank considers adequate to cover inherent risk of probable loss associated with its loan portfolio under prevailing and anticipated economic conditions. Based on the Bank's evaluation process and the methodology to determine the level of the allowance for loan losses, management believes the allowance level as of June 30, 2003 to be adequate to absorb the estimated known and inherent risks identified through its analysis. However, no assurance can be given that the Bank will not sustain losses in any given period which could be substantial in relation to the size of the allowance. DEPOSITS The Bank's total deposits amounted to $821.5 million at June 30, 2003, an increase of $61.5 million from $760.0 million at December 31, 2002. The Bank's average deposits increased $111.0 million or 15.71% to $817.6 million for the first six months of 2003 from $706.5 million for the same period of 2002. The average money market accounts increased $53.8 million or 48.25% to $165.3 million for the first six months of 2003 from $111.5 million for the same period of 2002. The average non-interest bearing deposits increased $25.4 million or 12.44% to $229.5 million for the first six months of 2003 from $204.1 million for the same period of 2002. The ratio of average noninterest-bearing deposits to average total deposits was 28.07% for the first six months of 2003 and 28.89% for the same period of 2002. The Bank's average total cost of deposits was 1.53% for the first six months of 2003 and 1.67% for the same period of 2002. The Bank does not hold any brokered deposits. The following table illustrates the deposit mix as of the dates indicated:

(Dollars in thousands) As of June 30, 2003 As of December 31, 2002 ------------------- ------------------------- Amount Percent Amount Percent -------- -------- -------- -------- Types of deposits: Demand, non-interest-bearing $251,861 30.66% $223,377 29.39% Money market accounts 125,447 15.27 126,272 16.61 Super Now 7,754 0.94 7,602 1.00 Savings 46,046 5.61 44,215 5.82 Time certificates of deposits of $100,000 or more 291,465 35.48 258,653 34.03 Other time deposits 98,912 12.04 99,877 13.15 -------- -------- -------- -------- Total deposits $821,485 100.00% $759,996 100.00% ======== ======== ======== ========

OTHER BORROWINGS The Bank's borrowings from Federal Home Loan Bank amounted to $70.0 million at June 30, 2003 and December 31, 2002. CAPITAL RESOURCES As of June 30, 2003, stockholders' equity was $106.0 million or 10.55% of total assets, compared with $100.9 million or 10.77% as of December 31, 2002. The Bank is required to maintain a minimum ratio of qualifying total capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1 Risk-Based Capital Ratio"). As of June 30, 2003 and December 31, 2002, the Bank's Total Risk-Based Capital Ratios were 14.36% and 15.95%, respectively, and its Tier 1 Risk Based Capital Ratios were 13.15% and 14.70%, respectively. The Bank's regulatory capital continued to well exceed the regulatory minimum requirements on June 30, 2003; however, the Bank is no longer considered to be "well capitalized" as a result of Consent Agreement entered into with Federal Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal Proceedings." To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table and not be subject to any regulatory order, agreement or directive. Banks are also required to maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks that have received the highest rating of the five categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans, and federal regulators may, however, set higher capital requirements when a bank's particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.38% and 11.56% at June 30, 2003 and December 31, 2002, respectively. The following table presents the Bank's regulatory capital amount and ratios as of June 30, 2003 and December 31, 2002.

AS OF JUNE 30, 2003 (DOLLARS IN THOUSANDS) ---------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS ------------------- ------------------- ----------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- -------- -------- -------- -------- ----------- Total capital (to risk-weighted assets) $115,195 14.36% $ 64,175 > or = 8.0% $ 80,219 > or =10.0% Tier I capital (to risk-weighted assets) 105,528 13.15 32,100 > or = 4.0 48,150 > or = 6.0 Tier I capital (to average assets) 105,528 10.22 41,303 > or = 4.0 51,628 > or = 5.0 ======== ======== ======== ========== ======== ==========

AS OF DECEMBER 31, 2002 (DOLLARS IN THOUSANDS) ------------------------------------------------------------------------ TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS ------------------- ------------------- ------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- -------- -------- -------- -------- ----------- Total capital (to risk-weighted assets) $108,689 15.95% $ 54,515 > or = 8.0% $ 68,144 > or = 10.0% Tier I capital (to risk-weighted assets) 100,169 14.70 27,257 > or = 4.0 40,885 > or = 6.0 Tier I capital (to average assets) 100,169 11.56 34,671 > or = 4.0 43,338 > or = 5.0 ======== ======== ======== ========== ======== ===========

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is the Bank's ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Bank's principal sources of liquidity have been growth in deposits and proceeds from the maturity of securities and repayments from loans. To supplement its primary sources of liquidity, the Bank maintained $222.9 million of borrowing capacity under a collateralized line of credit with the Federal Home Loan Bank of San Francisco. At June 30, 2003, the Bank's available liquidity totaled $270.3 million, which was approximately 30.32% of total deposits and 88.45% of total volatile liabilities compared to $186.4 million at December 31, 2002, which was approximately 24.52% of total deposits and 71.85% of total volatile liabilities. The volatile liabilities are comprised of time certificates of deposit of $100,000 or more and other volatile deposits. The Bank's policy is to maintain a minimum fund availability to total deposit and borrowing ratio of 20% and a minimum fund availability to total volatile liability ratio of 50%. The Bank considers any excessive cash holdings or balances in due from banks, overnight Fed funds sold, uncollateralized available-for-sale securities and readily available Federal Home Loan Bank advances as funds availability. The Bank follows the regulatory definition of volatile liabilities, which is Jumbo CD's. The ratios of the average balance of Jumbo CD's to average total deposits for June 30, 2003 and December 31, 2002 were 32.14% and 33.99%, respectively. The Bank had a significant portion of its time deposits maturing within one year or less as of June 30, 2003. Management anticipates that there may be some outflow of these deposits upon maturity due to the keen competition in the Bank's market place. However, based on its historical runoff experience, the Bank expects the outflow will be minimal and can be replenished through its normal growth in deposits. Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Bank's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through analyzing the repricing characteristics of its loans, securities, and deposits on an on-going basis. One of the primary goals is to optimize net income under varying interest rate environments. The focus of this process is the development, analysis, implementation and monitoring of earnings enhancement strategies that provide stable earnings and capital levels during periods of changing interest rates. Management uses both interest rate sensitivity analysis, and a simulation model to measure and quantify the impact to the Bank's profitability on the market value of its assets and liabilities. The interest rate sensitivity analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice in a particular time interval. A liability sensitivity results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. At June 30, 2003, the Bank maintained positive one-year gap position of $105.9 million or 10.54% of total assets. This compared with a positive one-year gap position of $86.5 million or 9.23% of total assets at December 31, 2002. The increase in gap was primarily due to a net increase in rate sensitive assets over rate sensitive liabilities. Because the Bank's assets tend to reprice more frequently than its liabilities over a twelve months horizon, the Bank will realize lower net interest income in a falling rate environment. Since an interest rate sensitivity analysis does not measure the timing differences in the repricing of assets and liabilities, the Bank uses a simulation model to quantify the extent of the differences in the behavior of the lending and funding rates, so as to project future earnings or market values under alternative interest scenarios. The following table presents the interest rate sensitivity of the Bank's interest-earning assets and interest-bearing liabilities as of June 30, 2003 using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its contractual terms. Actual payment patterns may differ from contractual payment patterns. INTEREST RATE SENSITIVITY ANALYSIS (Dollars in thousands)

At June 30, 2003 ---------------- Amounts Subject to Repricing Within ----------------------------------------------------------------- After 5 0-3 Months 3-12 Months 1-5 Years Years Total ---------- ---------- ---------- ---------- ---------- INTEREST-EARNING ASSETS: Total Loans* $ 627,509 $ 21,413 $ 55,549 $ 77,979 $ 782,450 Federal Home Loan Bank Stock 3,627 -- -- -- 3,627 Investment securities 11,930 21,627 105,234 33,243 163,034 Federal Funds sold 11,800 -- -- -- 11,800 Interest-earning deposits 177 -- -- -- 177 ---------- ---------- ---------- ---------- ---------- Total 655,043 34,040 160,783 111,222 961,088 INTEREST-BEARING LIABILITIES: Money market 125,447 -- -- -- 125,447 NOW 7,754 -- -- -- 7,754 Savings deposits 46,046 -- -- -- 46,046 Time deposits of $100,000 or more 156,378 132,784 9,148 -- 291,465 Other Time deposits 41,447 48,317 8,568 -- 98,912 Borrowed funds 10,000 15,000 45,000 -- 70,000 ---------- ---------- ---------- ---------- ---------- Total $ 387,072 $ 196,101 $ 56,451 $ -- $ 639,624 ========== ========== ========== ========== ========== Interest rate sensitivity gap $ 267,971 $ (162,061) $ 104,332 $ 111,222 $ 321,464 Cumulative interest rate sensitivity gap $ 267,971 $ 105,910 $ 210,242 $ 321,464 Cumulative interest rate sensitivity gap ratio as a percentage of total assets 26.68% 10.54% 20.93% 32.01%

*Loans including loan held forsale and unearned fees and excluding Non-Accrual Loans Although interest rate sensitivity gap is a useful measurement and contributes to effective asset and liability management, it is difficult to predict the effect of changing interest rates based solely on that measure. As a result, the Asset/Liability Management Committee also regularly uses simulation modeling as a tool to measure the sensitivity of earnings and net portfolio value ("NPV") to interest rate changes. Net portfolio value is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. The simulation model captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans and deposits, principal amortization, call options on securities, balance sheet growth assumptions and changes in rate relationships as various rate indices react differently to market rates. The simulation measures the volatility of net interest income and net portfolio value under immediate rising or falling market interest rate scenarios in 100 basis point increments. The following table sets forth the Bank's estimated net interest income over a twelve month period and NPV based on the indicated changes in market interest rates as of June 30, 2003.

% CHANGE IN NET INTEREST CHANGE INCOME (NEXT % CHANGE IN (IN BASIS POINTS) TWELVE MONTHS) NPV - ----------------- ----------------- ----------------- +200 10.72% 7.26% 5.12 3.63 +100 0 - - -100 -8.71 -3.73

As indicated above, the net interest income increases (decreases) as market interest rates rise (fall). This is due to the fact that the Bank maintained a positive gap and also a substantial portion of the interest earning assets reprice immediately after the rate change, interest-bearing liabilities reprice slower than interest-earning assets, and interest-bearing liabilities do not reprice to the same degree as interest earning assets, given a stated change in the interest rate. The NPV increases (declines) as the interest income increases (decreases) since the change in the discount rate has a greater impact on the change in the NPV than does the change in the cash flows. Management believes that the assumptions used by it to evaluate the vulnerability of the Bank's operations to changes in interest rates approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Bank's assets and liabilities and the estimated effects of changes in interest rates on the Bank's net interest income and NPV could vary substantially if different assumptions were used or actual experience differs from the historical experience on which they are based. The Bank's historical strategies in protecting both net interest income and economic value of equity investments from significant movements in interest rates have involved restructuring its investment portfolio and using FHLB advances. Bank policies also permit the purchase of rate caps and floors, and engaging in interest rate swaps, although the Bank has not yet engaged in either of these activities. At June 30, 2003 the Bank had no derivative instruments outstanding. ITEM 4. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Bank's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Bank's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of the end of the period covered by this report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Bank's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Bank would be made known to them by others within the Bank, particularly during the period in which this quarterly report was being prepared. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) CHANGES IN INTERNAL CONTROLS There were no significant changes in the Bank's internal controls or in other factors that could significantly affect these internal controls subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions. As a result, no corrective actions were taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by the General Counsel as to the current status of these claims or proceedings to which the Bank is a defendant, Management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on the financial condition of the Bank. The Bank has been subject to a Consent Order by the FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(1) since April 14, 2002. The Consent Order addresses actions necessary to correct certain Bank Secrecy Act ("BSA") compliance deficiencies including inadequate training and internal controls, and ineffective independent testing of such controls. Even before the Consent Order, the Bank had begun taking proactive steps to improve its BSA compliance. For example, the Bank implemented an enterprise-wide risk management infrastructure, which includes a comprehensive compliance and training program. This step was taken with the assistance of a leading financial services consulting firm, The Secura Group, which the Bank retained in November 2001 to advise and assist the Bank in its compliance efforts. To improve the overall efficiency and effectiveness of BSA monitoring, the Bank implemented an automated BSA tracking/monitoring system. In addition, the Bank is in the process of improving its due diligence efforts to identify and monitor high-risk accounts, internal controls to assure the accuracy and completeness of internal reports, and has intensified employee training. Finally, the Audit Committee has engaged Deloitte & Touche to conduct ongoing independent testing to validate the BSA monitoring controls, systems and processes including the implementation of the BSA Tracking System and also to oversee the bank-wide risk management. The Board of Directors, Management, Officers, and employees of the Bank are fully committed to complying with all of the terms of the Consent Order, and have been working and will continue to work closely with the FDIC towards this goal. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Bank's annual meeting of shareholders was held on May 22, 2003. Proxies were solicited by the Bank's management pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to Management's nominees for directorship as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of shareholders. The directors noted below were elected to serve in office until the next annual meeting of shareholders. The votes were as follows:

FOR AGAINST ABSTAIN Jin Kon Park 8,411,775 257,702 None Oh Kyung Kwon 8,400,075 269,402 None Yong Koo Kim 8,400,075 269,402 None Oh Hoon Kwon 8,309,475 360,002 None Donald D. Byun 8,653,402 16,075 None Kraig A. Kupiec 8,603,402 66,075 None Sun Kee Kim 8,603,402 66,075 None David B. Warner 8,181,175 488,302 None Ernest E. Dow 8,603,402 66,075 None

ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Exhibit

Exhibit Table Exhibit Table Reference Number Item Number - ---------------- ---- ------ 3.1 Articles of Incorporation, as Amended(1)........................................................ 3.2 2002 Amendment to Articles of Incorporation(2).................................................. 3.3 Bylaws, as Amended(1)........................................................................... 3.4 2001 Amendment to Bylaws(3)..................................................................... 4.1 Specimen of Common Stock Certificate(1)......................................................... 10.1 2000 Stock Option Plan(1)....................................................................... 10.2 401(k) Plan(3).................................................................................. 10.3 Lease for Corporate Headquarters(1)............................................................. 10.4 Lease for Western Branch Office(1).............................................................. 10.5 Lease for Wilshire Branch Office(1)............................................................. 10.6 Lease for Downtown Branch Office(1)............................................................. 10.7 Lease for Van Nuys Branch Office(1)............................................................. 10.8 Lease for Torrance Branch Office(1)............................................................. 10.9 Lease for Rowland Heights Branch Office(1)...................................................... 11.1 Statement Regarding Computation of Earnings Per Share(4)........................................ 31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.. 32.1 Certification of Chief Financial Officer and Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002......................................................................

(b) Reports on Form 8-K On April 10, 2003, the Bank filed a Form 8-K announcing that KEB will no longer recommend its retired executives to serve as president of the Bank and the Bank expects to retain an experienced President & CEO in American community banking. On July 26, 2003, the Bank filed a Form 8-K announcing the change of accounting firm. The accounting firm of KPMG, LLP was selected as independent auditors for the Bank's 2003 fiscal year and the Bank dismissed PricewaterhouseCoopers LLP as independent auditors for the Bank. - -------------- (1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration Statement, as filed with the FDIC on June 12, 2000. (2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed with the FDIC on April 1, 2003. (3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as filed with the FDIC on April 20, 2001. (4) The information required by this exhibit is incorporated herein by reference from Note of the Bank's Financial Statements included herein. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this to report be signed on its behalf by the undersigned thereunto duly authorized. Pacific Union Bank Date: August 13, 2003 By: /s/ Dianne Kim ---------------------------------------------------- Dianne Kim Senior Vice President and Chief Financial Officer (Principal financial or accounting officer and duly authorized signatory) EX-99.4 6 v96038exv99w4.txt EXHIBIT 99.4 EXHIBIT 99.4 ================================================================================ FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 - -------------------------------------------------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 FDIC Certificate Number 21765 PACIFIC UNION BANK (Exact name of registrant as specified in its charter) CALIFORNIA 95-2888370 State or other jurisdiction of I.R.S. Employer Identification Number incorporation or organization 3530 WILSHIRE BLVD. #1800 LOS ANGELES, CALIFORNIA 90010 Address of principal executive offices Zip Code (213) 385-0909 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report): Not applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO Common stock, $6.00 par value, 10,673,739 shares outstanding as of November 3, 2003. ================================================================================ PACIFIC UNION BANK TABLE OF CONTENTS

Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets - September 30, 2003 and December 31, 2002 Statements of Operations - Three months and nine months ended September 30, 2003 and 2002 Statements of Cash Flows - Nine months ended September 30, 2003 and 2002 Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PACIFIC UNION BANK Balance Sheets As of September 30, 2003 and December 31, 2002 (Unaudited)

SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- ASSETS Cash and due from banks - demand $ 21,426,702 $ 24,054,519 Federal funds sold 24,500,000 62,500,000 Due from banks - interest-bearing 466,030 210,654 Federal Home Loan Bank Stock 5,789,500 3,537,800 Securities held-to-maturity, at amortized cost (fair value of $68,323,575 at September 30, 2003 and $90,798,966 at December 31, 2002) 68,271,548 89,313,683 Securities available-for-sale, at fair value 94,344,814 64,701,421 Loans receivable 825,495,501 683,131,191 Less allowance for loan losses (9,997,111) (8,872,995) --------------- --------------- Net loans receivable 815,498,391 674,258,196 --------------- --------------- Loans held for sale 5,966,111 -- Customers' acceptance liabilities 1,321,142 657,760 Bank premises and equipment, net 6,387,210 6,610,142 Accrued interest receivable 3,340,159 3,404,574 Deferred tax assets 5,857,031 4,663,046 Income taxes receivable 1,566,542 1,116,038 Other assets 3,068,992 1,967,404 --------------- --------------- Total assets $ 1,057,804,171 $ 936,995,237 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand, non-interest-bearing $ 242,528,146 223,377,195 Demand, interest-bearing 8,606,956 7,602,024 Money market and savings 183,947,600 170,486,917 Time certificates of deposit: Less than $100,000 96,631,660 99,876,831 $100,000 or more 306,252,523 258,652,585 --------------- --------------- Total deposits 837,966,885 759,995,552 Other borrowed funds 105,000,000 70,000,000 Acceptance liabilities 1,321,142 657,760 Accrued interest payable 3,235,623 3,140,064 Other liabilities 2,068,174 2,325,902 --------------- --------------- Total liabilities 949,591,824 836,119,278 --------------- --------------- Stockholders' equity: Common stock, $6 par value. Authorized 30,000,000 shares; issued and outstanding 10,673,739 shares at September 30, 2003 and 10,621,554 shares at December 31, 2002 64,050,853 63,724,507 Capital surplus 22,309,108 22,174,825 Retained earnings 21,798,965 14,283,984 Accumulated other comprehensive income - unrealized gain on securities available-for-sale - net of taxes 53,421 692,643 --------------- --------------- Total stockholders' equity 108,212,347 100,875,959 --------------- --------------- Total liabilities and stockholders' equity $ 1,057,804,171 $ 936,995,237 =============== ===============

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK Statements of Operations For the Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited)

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED 2003 2002 2003 2002 ----------- ---------- ----------- ---------- Interest income: Interest and fees on loans $11,202,615 9,348,476 $31,841,752 27,142,726 Dividend on Federal Home Loan Bank stock 42,886 16,186 123,014 46,701 Interest on securities held-to-maturity 718,348 925,123 2,355,462 964,106 Interest on securities available-for-sale 748,845 1,429,941 2,100,297 4,809,762 Interest on Federal funds sold 105,777 329,590 616,159 932,252 Other interest income 1,056 7,342 18,021 15,674 ----------- ---------- ----------- ---------- Total interest income 12,819,527 12,056,658 37,054,705 33,911,221 Interest expense: Demand - interest bearing 5,870 10,778 17,351 30,551 Savings and money market 700,339 653,382 1,932,871 1,839,371 Time certificates of deposit: Less than $100,000 639,468 815,624 2,018,174 2,389,543 $100,000 or more 1,603,698 1,743,956 4,522,689 4,780,060 Other borrowings 578,169 503,576 1,781,288 551,967 ----------- ---------- ----------- ---------- Total interest expense 3,527,544 3,727,316 10,272,373 9,591,492 Net interest income before provision for loan losses 9,291,983 8,329,342 26,782,332 24,319,729 Provision for loan losses 400,000 200,000 1,300,000 400,000 ----------- ---------- ----------- ---------- Net interest income after provision for loan losses 8,891,983 8,129,342 25,482,332 23,919,729 ----------- ---------- ----------- ---------- Other income: Service charges on deposit accounts 1,550,299 1,602,043 4,781,409 4,802,707 Remittance fees 216,391 211,466 677,710 664,379 Letter of credit related fees 179,636 215,455 578,363 618,555 Gain on sale of premise -- -- -- 1,193,797 Gain on sale of investment securities 100,000 -- 100,000 -- Gain on sale of loans 1,020,597 -- 1,801,003 -- Other operating income 468,870 386,333 1,353,408 1,283,621 ----------- ---------- ----------- ---------- Total other income 3,535,793 2,415,298 9,291,893 8,563,059 ----------- ---------- ----------- ---------- Other expenses: Salaries and employee benefits 3,784,154 3,108,228 10,526,824 8,925,940 Security guards 220,849 239,803 661,070 715,836 Net occupancy expense 713,345 716,737 2,108,898 2,167,912 Equipment expense 330,860 312,705 1,046,496 1,043,467 Data processing 486,125 482,244 1,452,233 1,441,452 Office supplies 115,484 99,740 314,741 354,439 Legal and professional 294,888 272,362 710,049 964,974 Advertising and public relations 190,317 209,609 546,921 574,573 Communication related expense 246,880 270,779 763,937 762,856 Other operating expenses 927,824 704,253 2,333,315 1,778,042 ----------- ---------- ----------- ---------- Total other expenses 7,310,726 6,416,459 20,464,484 18,729,491 ----------- ---------- ----------- ---------- Income before income taxes 5,117,050 4,128,181 14,309,741 13,753,297 Income taxes 2,050,000 1,491,000 5,728,000 5,337,000 ----------- ---------- ----------- ---------- Net income $ 3,067,050 2,637,181 $ 8,581,741 8,416,297 =========== ========== =========== ========== Net income per share: Basic $ 0.29 0.25 $ 0.81 0.79 Diluted $ 0.29 0.25 $ 0.80 0.79 Weighted-average common shares outstanding: Basic 10,669,716 10,621,554 10,645,963 10,614,150 Diluted 10,729,797 10,703,296 10,715,290 10,703,988

See accompanying notes to financial statements PACIFIC UNION BANK Statements of Cash Flows For the Nine Months Ended September 30, 2003 and 2002 (Unaudited)

09/30/2003 09/30/2002 ------------- ------------- Cash flows from operating activities: Net income $ 8,581,741 $ 8,416,297 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses 927,150 1,038,641 Provision for loan losses 1,300,000 400,000 Accretion of discount and amortization of premium on securities held-to-maturity, net (121,424) (888,413) Accretion of discount and amortization of premium on securities available-for-sale, net (654,698) 57,446 Net loss (gain) on disposal of Bank premises and equipment 9,943 (1,200,897) Gain on sale of loans (1,801,003) -- Origination of loans held for sale (30,974,418) -- Proceeds from sale of loans held for sale 33,095,363 -- Decrease (Increase) in accrued interest receivable 64,415 (536,705) (Increase) decrease in deferred income taxes (724,220) 326,252 Increase in income taxes receivable (450,504) (1,046,517) Stock dividend on Federal Home Loan Bank stock (127,700) (64,900) Increase in other assets (1,101,588) (234,957) Increase (decrease) in accrued interest payable 95,559 (1,627,050) (Decrease) increase in other liabilities (257,728) 336,137 ------------- ------------- Net cash provided by operating activities 7,860,888 4,975,334 ------------- ------------- Cash flows from investing activities: Increase in Federal Home Loan Bank Stock (2,124,000) (1,931,300) Proceeds from maturities and redemptions of securities held-to-maturity 46,128,693 2,451,925 Proceeds from maturities and redemptions of securities available-for-sale 69,636,759 49,297,215 Purchase of securities held-to-maturity (24,965,134) (100,474,411) Purchase of securities available-for-sale (99,734,441) (16,172,981) Proceeds from recoveries of written-off loans 325,583 97,550 Net increase in loans (149,151,830) (83,956,899) Purchases of Bank premises and equipment (714,161) (584,094) Proceeds from sale of Bank premises and equipment -- 3,574,300 ------------- ------------- Net cash used in investing activities (160,598,531) (147,698,695) ------------- ------------- Cash flows from financing activities: Net increase in demand deposits, non-interest-bearing 19,150,951 25,580,380 Net increase in demand deposits, interest-bearing 1,004,932 1,551,020 Net increase in money market and savings deposits 13,460,683 33,580,966 Net increase in time certificates of deposit 44,354,767 21,338,785 Proceeds in other borrowed funds 35,000,000 70,000,000 Proceeds from exercise of stock options 460,629 148,248 Cash dividend paid (1,066,760) -- Cash paid for fractional shares -- (425) ------------- ------------- Net cash provided by financing activities 112,365,202 152,198,974 ------------- ------------- Net (decrease) increase in cash and cash equivalents (40,372,441) 9,475,613 Cash and cash equivalents at beginning of period 86,765,173 68,073,953 ------------- ------------- Cash and cash equivalents at end of period $ 46,392,732 $ 77,549,566 ============= ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 10,176,814 $ 11,218,543 Income taxes $ 7,800,000 $ 5,837,000 ============= ============= Supplemental disclosure of non-cash investing & financing activities: Transfer of retained earnings to common stock and capital surplus for Stock dividend $ -- $ 13,070,291 Transfer in of loans held for sale $ 5,966,111 $ 2,272,624

See accompanying notes to unaudited financial statements. PACIFIC UNION BANK NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Pacific Union Bank ("Bank") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United State of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 2. COMPREHENSIVE INCOME Comprehensive income consists of net income and net unrealized gain (loss) on securities available-for-sale. The comprehensive income amounted to $7.9 million, which included net income of $8.6 million and a decrease in unrealized gain of $639,000, which is net of the tax effect of $470,000 for the nine months ended September 30, 2003. The comprehensive income amounted to $8.3 million, which included net income of $8.4 million and a decrease in unrealized gain of $150,000, which is net of the tax effect of $243,000 for the nine months ended September 30, 2002. 3. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation for the three months ended September 30, 2003 and 2002.

WEIGHTED NET INCOME AVERAGE SHARES PER SHARE 2003 (NUMERATOR) (DENOMINATOR) AMOUNT ---------- -------------- ---------- Basic EPS - Income available to common stockholders $3,067,050 10,669,716 $ 0.29 Effect of Dilutive Stock Options -- 60,081 -- ---------- ------------ ---------- Diluted EPS - Income available to common stockholders $3,067,050 10,729,797 $ 0.29 ========== ============ ==========

WEIGHTED NET INCOME AVERAGE SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT ---------- -------------- ---------- Basic EPS - Income available to common stockholders $2,637,181 10,621,554 $ 0.25 Effect of Dilutive Stock Options -- 81,742 -- ---------- ------------ ---------- Diluted EPS - Income available to common stockholders $2,637,181 10,703,296 $ 0.25 ========== ============ ==========

The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation for the nine months ended September 30, 2003 and 2002.

WEIGHTED NET INCOME AVERAGE SHARES PER SHARE 2003 (NUMERATOR) (DENOMINATOR) AMOUNT ---------- -------------- ---------- Basic EPS - Income available to common stockholders $ 8,581,741 10,645,963 0.81 Effect of Dilutive Stock Options -- 69,328 (0.01) ----------- ------------ ---------- Diluted EPS - Income available to common stockholders $ 8,581,741 10,715,290 0.80 =========== ============ ==========

WEIGHTED NET INCOME AVERAGE SHARES PER SHARE 2002 (NUMERATOR) (DENOMINATOR) AMOUNT ---------- -------------- ---------- Basic EPS - Income available to common stockholders $8,416,297 10,614,150 $ 0.79 Effect of Dilutive Stock Options -- 89,838 -- ----------- ------------ -------- Diluted EPS - Income available to common stockholders $8,416,297 10,703,988 $ 0.79 =========== ============ ========

4. CAPITAL TRANSACTIONS The Bank's outstanding number of shares was 10,673,739 at September 30, 2003. The Bank has declared a quarterly cash dividend of $0.05 per common share on October 27, 2003. The cash dividend will be paid on November 28, 2003 to all shareholders of record as of November 17, 2003. 5. STOCK OPTIONS Had compensation cost for the Bank's stock option plan been determined based on the fair values at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, the Bank's net income and earnings per share for the nine months ended September 30, 2003 and September 30, 2002 would have been reduced to the pro forma amounts indicated below.

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPT. 30, 2003 SEPT. 30, 2002 SEPT. 30, 2003 SEPT. 30, 2002 -------------- -------------- -------------- -------------- Net Income: As reported $ 3,067,050 $ 2,637,181 $ 8,581,741 $ 8,416,297 Stock based compensation expense (16,636) (18,372) (45,555) (41,418) ----------- ------------ ------------ ------------ Pro-forma 3,050,414 2,618,809 8,536,186 8,374,879 =========== ============ ============ ============ Earnings per share: As reported: Basic $ 0.29 $ 0.25 $ 0.81 $ 0.79 Diluted 0.29 0.25 0.80 0.79 Pro-forma: Basic $ 0.29 $ 0.25 $ 0.80 $ 0.79 Diluted 0.28 0.24 0.80 0.78

6. RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123 ), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in not only annual, but also interim financial statements about the effect the fair value method would have had on reported results. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. It is anticipated that the financial impact of SFAS 148 will not have a material effect on the Bank. In January 2003, The Financial Accounting Standards Board (FASB or the "Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation addresses consolidation by business enterprises of variable interest entities and clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The FASB deferred the effective date for applying the provision of FIN 46 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 until the end of the first interim or annual period after December 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 1, 2003, regardless when the variable interest entity was established. The Bank has no business interests that require consolidation or deconsolidation as a result of applying provisions of FIN 46. In April, 2003, The Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149") was issued. SFAS No. 149 clarifies and amends financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). In general, SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The financial impact of SFAS 149 did not have a material effect on the Bank. In May, 2003, Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150") was issued. FASB No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity that have been presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position. Generally, SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. SFAS 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before May 15, 2003 and still existing at the beginning of the interim period of adoption. The financial impact of SFAS 150 did not have a material effect on the Bank. 7. SUBSEQUENT EVENT Korea Exchange Bank ("KEB"), which holds approximately 62% of the Bank's outstanding shares, recently accepted a capital infusion from Lone Star Fund IV (U.S.), L.P. and its affiliates (collectively, "Lone Star"), which resulted in Lone Star holding a majority of the outstanding voting stock of KEB. In connection with the infusion, KEB transferred all of the Bank shares that it owns to a trust pursuant to a trust agreement dated October 31, 2003, which was entered into between KEB, as grantor and Mr. L. Dale Crandall, as trustee. While KEB retains all of the economic interest in the Bank shares transferred to the trust, the trust agreement gives the trustee voting and dispositive power over the Bank shares and directs the trustee to dispose of all or substantially all of such interest either directly through a sale or in connection with a merger or similar transaction of the Bank with a third party. The transfer of the shares to the trustee does not affect the Bank's day-to-day business and operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis includes forward-looking statements regarding management's beliefs, projections and assumptions concerning future results and events. When used the words "anticipate", "believe", "estimate", "expect", and "intend" and words or phrases of similar meanings as they relate to the Bank or the Bank's management, are intended to identify forward-looking statements. These statements are not guarantees and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Bank to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, governmental policies and actions of regulatory agencies, costs associated with the Bank's future expansion, competition from other commercial banks and other competition and market and general economic factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which speak as of the date hereof. All forward-looking statements contained in this Form 10-Q are qualified in their entirety by this cautionary statement. The following discussion and analysis is intended to provide details of the results of operations of the Bank for the three months and nine months ended September 30, 2003 and 2002 and financial condition at September 30, 2003 and at December 31, 2002. The following discussion should be read in conjunction with Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the Federal Deposit Insurance Corporation in particular as it relates to the critical accounting policies as discussed in item 14 of the Form 10-K/A. RESULTS OF OPERATIONS Net income for the quarter ended September 30, 2003 increased by $430,000 or 16.3% to $3.1 million compared to $2.6 million for the same period in 2002. Diluted earnings per share increased by 16.0% to $0.29 for the three months ended September 30, 2003 compared with $0.25 for the correspondent period of 2002. The annualized return on average assets ("ROA") and return on average stockholders' equity ("ROE") were 1.16% and 11.52%, respectively, for the third quarter of 2003, compared to 1.17% and 11.06%, respectively, for the same period of 2002. Net Income increased by $165,000 or 2.0 % to $8.6 million for the nine months ended September 30, 2003 compared to $8.4 million for the same period of 2002. Diluted earnings per share increased to $0.80 for the nine months ended September 30, 2003 compared to $0.79 for the same period of 2002. The annualized ROA and ROE for nine months ended September 30, 2003 were 1.12% and 10.99%, respectively, compared to 1.34% and 12.14%, respectively, for the same period of 2002. NET INTEREST INCOME The Bank's primary source of income is net interest income, which is the difference between interest income from interest-earning assets and interest paid on interest-bearing liabilities, such as deposits and other borrowings used to fund those assets. The Bank's net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities as well as by changes in yield earned on interest-earning assets and rates paid on interest-bearing liabilities. The Bank also generates non-interest income, including the service charges on deposit accounts and other transactional fees. The Bank's non-interest expenses consist primarily of personnel, occupancy and equipment expense and other operating expenses. The Bank's results of operations are affected by its provision for loan losses and may also be significantly affected by other factors including general economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory agencies. Net interest income before the provision for the loan losses increased by $963,000 or 11.56% to $9.3 million in the third quarter of 2003, compared to $8.3 million in the same quarter of 2002. Total interest income increased by $764,000 or 6.33% to $12.8 million in the third quarter of 2003, compared to $12.1 million in the same quarter of 2002 primarily due to an increase of $1.9 million in interest and fees on loans and partially offset by a $888,000 decrease in interest on investment securities. The increase in interest income is primarily due to the average volume increase of $148.5 million or 17.20% in interest earning-assets to $1 billion in the third quarter of 2003 from $863.0 million in the same quarter of 2002. The major increase in interest earning-assets is primarily due to the increase in the average loans, including loans held for sale, which loans grew $202.1 million or 33.86% to $798.9 million in the third quarter of 2003 compared to $596.8 million for the corresponding quarter of 2002. The yield on average interest earning-assets was 5.02% in the third quarter of 2003 compared to 5.49% in the same quarter of 2002. Offsetting the increase in average net loans, the yield on average loans, including loans held for sale, decreased by 58 basis points to 5.55% in the third quarter of 2003 from 6.13% in the same quarter of 2002, which negatively affected loan interest income. The decrease in the loan yield was mainly due to a decrease in the average prime rate of 75 basis points in the third quarter of 2003 compared to the same period of prior year. Total interest expense decreased by $200,000 or 5.34% to $3.5 million for the third quarter of 2003 compared to $3.7 million for the same quarter of 2002. The decrease is mainly due to a decreased interest expense of $176,000 from Time Certificates of Deposit less than $100,000. Average money market deposits increased $69.6 million or 62.65% to $180.8 million in the third quarter of 2003 compared with $111.2 million for the corresponding period of 2002. The cost of money market deposits decreased 65 basis points to 1.39% for the third quarter of 2003 from 2.04% for the corresponding period of 2002. Average time certificates of deposit of $100,000 or more increased $31.8 million or 12.20% to $292.0 million in the third quarter of 2003 compared with $260.3 million for the corresponding period of 2002. The cost of average time certificates of deposit of $100,000 or more decreased 46 basis points to 2.20% in the third quarter of 2003 from 2.66% in the corresponding quarter of 2002. The cost of funds decreased 34 basis points to 1.50% in the third quarter of 2003 compared with 1.84% in the same quarter of 2002. Net interest income before provision for loan losses increased $2.5 million or 10.12% to $26.8 million for the nine months ended September 30, 2003 compared to $24.3 million for the same period of 2002. Total interest income increased by $3.1 million or 9.27% to $37.1 million for the nine months ended September 30, 2003 compared with $33.9 million in the same period in 2002. The increase in total interest income was primarily due to a $4.7 million increase in interest on loans and partially offset by a $1.3 million decrease in interest on investment securities. The average net loans, including loans held for sale, for the first nine months of 2003 increased by $170.1 million to $745.2 million compared with $575.0 million for the same period of 2002. Total interest expense increased by $681,000 or 7.10% to $10.3 million for the nine months ended September 30, 2003, compared with $9.6 million for the corresponding period of 2002. The increase was primarily attributable to a $1.2 million increase in interest on Federal Home Loan Bank advances. The average balance of Federal Home Loan Bank advances increased by $47.7 million to $68.6 million in the first nine months of 2003 compared to $20.1 million in the same period of 2002. The increase in interest on Federal Home Loan Bank advances was partially offset by a $257,000 decrease in interest expense from Time Certificates of Deposit $100,000 or more. NET INTEREST MARGIN Net interest margin decreased by 19 basis points to 3.67% for the third quarter of 2003 compared to 3.86% for the corresponding period of 2002. The decrease in net interest margin was primarily attributable to the decrease in the average interest-earning assets yield of 47 basis points to 5.02% in the third quarter of 2003 compared with 5.49% in the same quarter of 2002. The decrease in the average interest-earning assets yield was offset by the cost of funds decrease of 34 basis points to 1.50% in the third quarter of 2003 from 1.84% in the corresponding quarter of 2002. Net interest margin decreased by 41 basis points or 10.05% to 3.67% for the nine months ended September 30, 2003 compared to 4.08% for the corresponding period of 2002. The decrease in net interest margin was primarily attributable to the decrease in the average interest-earning assets yield of 60 basis points to 5.03% for the nine months ended September 30, 2003 compared with 5.63% in the same period of 2002. The decrease in the average interest-earning assets yield was offset by the cost of funds decrease of 21 basis points to 1.52% for the nine months ended September 30, 2003 from 1.73% in the corresponding period of 2002. The following table presents condensed average balance sheet information for the Bank, together with interest rates earned and paid on the various sources and uses of funds for each of the periods indicated: DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME (DOLLARS IN THOUSANDS)

For the Three Months Ended For the Three Months Ended September 30, 2003 September 30, 2002 --------------------------------------------- ------------------------------------------- Average % to Average % to Average Income/ Rate/ Earning Average Income/ Rate/ Earning Balance Expense Yield(45) Assets Balance Expense Yield(1) Assets ------------ -------- -------- ------- ----------- ------- ------- ------- ASSETS: Interest-earning assets: Loans, net(46) $ 798,906 11,203 5.55% 78.98% $ 596,800 9,348 6.13% 69.15% Federal Home Loan Bank stock 4,246 43 4.05% 0.42% 2,853 17 2.38% 0.33% Taxable investment securities(47) U.S. Treasury Securities 1,004 23 9.16% 0.10% 1,008 15 5.95% 0.21% U.S. Governmental Agencies 161,742 1,444 3.57% 15.99% 183,461 2,338 5.10% 21.26% Tax-exempt Investment Securities: State & Municipal Obligation 0 0 0 0 200 2 4.00% 0.02% Federal funds sold 45,129 106 0.93% 4.46% 76,648 329 1.68% 8.88% Interest-earning deposits 479 1 0.84% 0.05% 2,066 7 1.34% 0.24% ------------ -------- ------ ----------- ------ ------ Total interest-earning assets 1,011,506 12,820 5.02% 100.00% 863,036 12,056 5.49% 100.00% ------------ -------- ------ ----------- ------ ------ Non-interest-earning assets: Cash and due from banks 23,394 23,441 Premises and equipment, net 6,260 6,699 Other real estate owned 0 0 Customers' acceptance liabilities 1,713 1,678 Accrued interest receivable 3,298 3,433 Other assets 9,943 5,450 ------------ ----------- Total non-interest-earning assets 44,608 40,701 ------------ ----------- Total assets $ 1,056,114 $ 903,737 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 180,813 $ 625 1.39% $ 111,170 571 2.04% Super NOW 8,000 6 0.30% 7,800 11 0.56% Savings 46,406 75 0.65% 43,481 82 0.75% Time certificates of deposit of $100,000 or more 292,040 1,605 2.20% 260,284 1,744 2.66% Other time certificates of deposit 108,078 639 2.37% 105,843 815 3.05% Other borrowings 65,765 578 3.48% 57,066 504 3.46% ------------ -------- ----------- ------ Total interest-bearing liabilities 701,102 3,528 2.02% 585,644 3,727 2.52% ------------ -------- ----------- ------ Non-interest-bearing liabilities: Demand deposits 241,197 215,886 Other liabilities 7,350 6,879 ------------ ----------- Total non-interest-bearing liabilities 248,547 1.50% 222,765 1.84% ------------ ----------- Stockholders' equity 106,465 95,328 ------------ ----------- Total liabilities and $ 1,056,114 $ 903,737 stockholders' equity ============ =========== Net interest income $ 9,292 8,329 ======== ====== Net interest spread(48) 3.00% 2.97% ====== ====== Annualized net interest margin(49) 3.67% 3.86% ====== ====== Ratio of average interest-bearing assets to average interest-bearing liabilities 144.27% 147.37% ====== ======

DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME (DOLLARS IN THOUSANDS) - ----------------- (45) Average rates/yields for these periods have been annualized. (46) Loan includes loans held for sale and net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $1.6 million and $1.3 million at September 30, 2003 and 2002. (47) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (48) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (49) Represents net interest income as a percentage of average interest-earning assets.

For the Nine Months Ended For the Nine Months Ended September 30, 2003 September 30, 2002 --------------------------------------------- ------------------------------------------- Average % to Average % to Average Income/ Rate/ Earning Average Income/ Rate/ Earning Balance Expense Yield(50) Assets Balance Expense Yield(1) Assets ------------ -------- -------- ------- ----------- ------- ------- ------- ASSETS: Interest-earning assets: Loans, net(51) $ 745,169 $ 31,841 5.63% 76.59% $ 575,031 27,143 6.22% 72.31% Federal Home Loan Bank stock 3,799 123 4.32% 0.39% 1,974 47 3.17% 0.25% Taxable investment securities(52) U.S. Treasury Securities 2,360 56 3.16% 0.24% 1,329 59 5.92% 0.17% U.S. Governmental Agencies 147,686 4,400 3.97% 15.18% 141,926 5,709 5.36% 17.85% Tax-exempt Investment Securities: State & Municipal Obligation 0 0 0 0 199 6 3.86% 0.03% Federal funds sold 71,282 616 1.14% 7.33% 73,397 932 1.67% 9.23% Interest-earning deposits 2,612 18 0.92% 0.27% 1,427 15 1.41% 0.18% ------------ -------- ------- ----------- ------ ------ Total interest-earning assets 972,908 37,054 5.03% 100.00% 795,283 33,911 5.63% 100.00% ------------ -------- ------- ----------- ------ ------ Non-interest-earning assets: Cash and due from banks 23,663 25,791 Premises and equipment, net 6,344 8,177 Other real estate owned 0 0 Customers' acceptance liabilities 1,310 1,172 Accrued interest receivable 3,242 3,364 Other assets 9,662 4,973 ------------ ----------- Total non-interest-earning assets 44,221 43,477 ------------ ----------- Total assets $ 1,017,129 $ 838,760 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing liabilities: Deposits: Money market $ 170,541 $ 1,847 1.45% $ 111,378 1,601 1.92% Super NOW 7,710 17 0.29% 7,331 31 0.57% Savings 45,973 86 0.25% 42,658 238 0.75% Time certificates of deposit of $100,000 or more 272,647 4,523 2.22% 246,633 4,780 2.59% Other time certificates of deposit 107,125 2,018 2.52% 103,245 2,389 3.09% Other borrowings 68,583 1,781 3.42% 20,926 552 3.48% ------------ -------- ----------- ------ Total interest-bearing liabilities 672,579 10,272 2.04% 532,171 9,591 2.41% ------------ -------- ----------- ------ Non-interest-bearing liabilities: Demand deposits 233,447 208,080 Other liabilities 7,013 6,040 ------------ ----------- Total non-interest-bearing liabilities 240,460 1.52% 214,120 1.73% ------------ ----------- Stockholders' equity 104,090 92,469 ------------ ----------- Total liabilities and stockholders' equity $ 1,017,129 $ 838,760 ============ =========== Net interest income $ 26,782 24,320 ======== ====== Net interest spread(53) 2.99% 3.22% ====== ====== Annualized net interest margin(54) 3.67% 4.08% ====== ====== Ratio of average interest-bearing assets to average interest-bearing liabilities 144.65% 149.44% ====== ======

- ----------------- (50) Average rates/yields for these periods have been annualized. (51) Loan includes loans held for sale and net of the allowance for loan losses, deferred fees and related direct costs. Non-accrual loans are included in the table for computation purposes, but the foregone interest of such loans is excluded. Loan fees were $1.6 million and $1.3 million at September 30, 2003 and 2002. (52) Yields on tax-exempt income have not been computed on a tax equivalent basis because tax-exempt securities are minimal. (53) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (54) Represents net interest income as a percentage of average interest-earning assets. The following table sets forth, for the years 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 changes in average daily balances (volume) or changes in interest rates (rate). The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each:

FOR THE NINE MONTH ENDED SEPTEMBER 30, 2003 VS. 2002 INCREASES (DECREASES) DUE TO CHANGE IN VOLUME RATE(1) TOTAL ------ ---------------------- ------- (DOLLARS IN THOUSANDS) EARNING ASSETS: INTEREST INCOME: Loans, net(2).................. $7,455 (2,757) 4,698 Federal Home Loan Bank stock... 55 21 76 Taxable investment securities: U. S. Treasury securities.... 32 (35) (3) U. S. Government agencies.... 224 (1,533) (1,309) Tax-exempt securities:(3) State and Municipal Obligation (6) - (6) Federal funds sold............. (26) (290) (316) Interest-earning deposits...... 9 (6) 3 ------ ------- ------ Total net change in interest income..... $7,743 ($4,600) $3,143 ------ ------- ------ DEPOSITS AND BORROWED FUNDS: INTEREST EXPENSE: Money market deposits.......... 707 (461) 246 Super NOW...................... 2 (15) (13) Savings deposits............... 17 (169) (152) Time certificates of deposit in denominations of $100,000 or more..................... 473 (731) (258) Other time deposits............ 87 (458) (371) Other borrowings............... 1,237 (8) 1,229 ------ ------- ------ Total net change in interest expense.... 2,523 (1,842) 681 ------ ------- ------ Change in net interest income..... $5,220 ($2,758) $2,462 ====== ======= ======

PROVISION FOR LOAN LOSSES Provisions for loan losses are made monthly, to cover incurred losses as a result of credit risks. Credit risk is inherent in making loans. The Bank sets aside an allowance for loan losses through charges to earnings. The charges are reflected in the income statement as the provision for loan losses. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that in Management's judgment is adequate to absorb incurred losses inherent in the Bank's loan portfolio. For the third quarter of 2003 the provision for loan losses amounted to $400,000 compared with $200,000 in the corresponding period of 2002. The provision for loan losses amounted to $1,300,000 for the nine months ended September 30, 2003 compared with $400,000 for the same period of 2002. The increase was mainly attributable to a strong loan growth in 2003. On a quarterly basis, management performs an analysis of the adequacy of the allowance for loan losses. The results of this analysis for the quarter ended September 30, 2003 determined that the allowance was adequate to absorb incurred losses inherent in the portfolio. The procedures for monitoring the adequacy of the - ----------------- (1) Rates for these periods on which calculations are based have been annualized. (2) Loan fees net of direct cost have been included in the calculation of interest income. Loan fees were $571,000 and $436,000 for the nine months ended September 30, 2003 and 2002, respectively. Loans are net of the allowance for loan losses, deferred fees and related direct costs. (3) Yields on tax-exempt income have not been computed on a tax equivalent basis, because the percentage of tax-exempt securities is minimal. allowance, as well as detailed information concerning the allowance itself, are included below under "Allowance for loan losses." NON-INTEREST INCOME Non-interest income increased $1.1 million or 46.42% to $3.5 million in the third quarter of 2003 compared to $2.4 million in the same quarter of 2002. The increase resulted mainly from a $1.0 million gain recognized from the sale of SBA loans, a $100,000 gain recognized from the sale of investment securities and a $83,000 increase in other operating income in the third quarter of 2003. The other operating income consists of credit card related fees, mortgage loan related fees, merchant discount fees, remittance and cable fees and other various fees. The increase was partially offset by a decrease of $52,000 on service charges on deposit accounts in the third quarter of 2003. Non-interest income increased $729,000 or 8.51% to $9.3 million for the nine months of 2003 compared to $8.6 million in the same period of 2002. The increase resulted mainly from a $1.8 million gain recognized from the sale of loans during the first nine months of 2003 and was partially offset by a decrease of $1.2 million on the sale of San Francisco premises during the first nine months of 2002. The Bank is planning to continue to originate and sell the guaranteed portion of SBA loans in the last quarter of 2003. The following table sets forth the various components of the Bank's non-interest income for the periods indicated: NON-INTEREST INCOME (Dollars in thousands)

Three Months Ended Increase (Decrease) --------------------------- ------------------------- 09/30/03 09/30/02 Amount Percent(%) ---------- ---------- ----------- --------- Service charges on deposit accounts $ 1,550 $ 1,602 $ (52) (3.25)% Remittance fees 216 211 5 2.37 Letter of credit related fees 180 216 (36) (16.67) Gain on sale of loans 1,021 -- 1,021 NMV Gain on sale of investment securities 100 -- 100 NMV Other operating income 469 386 83 21.50 ---------- ---------- ----------- ----- Total $ 3,536 $ 2,415 $ 1,121 46.42% ========== ========== =========== =====

Nine Months Ended Increase (Decrease) --------------------------- ------------------------- 09/30/03 09/30/02 Amount Percent(%) ---------- ---------- ----------- --------- Service charges on deposit accounts $ 4,781 $ 4,803 $ (22) (0.46)% Remittance fees 678 664 14 2.11 Letter of credit related fees 578 619 (41) (6.05) Gain on sale of premise -- 1,194 (1,194) (100.00) Gain on sale of loans 1,801 -- 1,801 NMV Other operating income 1,354 1,283 71 5.53 Gain on sale of investment securities 100 -- 100 NMV ---------- ---------- ----------- ----- Total $ 9,292 $ 8,563 $ 729 8.51% ========== ========== =========== =====

NON-INTEREST EXPENSE Non-interest expense increased by $895,000 or 13.95% to $7.3 million in the third quarter of 2003, compared to $6.4 million in the corresponding quarter of 2002. The increase is mainly attributable to an increase of $676,000 in salaries and employee benefits and a $225,000 increase in other expenses offset by a decrease of $24,000 in communication related expenses and a decrease of $20,000 in advertising and public relations. An increase in salaries and employee benefits was mainly attributable to the increase in number of employees, medical expenses and annual bonus accrual for 2003. Other operating expenses consist of other loan related expenses, regulatory assessment expenses, employee related fees and other outside fees. The efficiency ratio for the third quarter of 2003 was 56.99% compared to 59.72% for the corresponding quarter of 2002. Non-interest expense increased by $1.7 million or 9.26% to $20.5 million for the nine months ended September 30, 2003, compared to $18.7 million in the corresponding period of 2002. The increase is mainly attributable to an increase of $1.6 million in salaries and employee benefits and an increase of $555,000 in other operating expenses. The increase in salaries and employee benefits mainly resulted from the increases in number of employees, medical expenses and annual bonus accrual for 2003. The efficiency ratio for the nine months of 2003 was 56.73% compared to 56.96% for the corresponding period of 2002. The following table presents the components of the non-interest expense with the amount and percentage changes for the periods indicated: NON-INTEREST EXPENSE (Dollars in thousands)

Three Months Ended Increase / (Decrease) -------------------------- -------------------------- 09/30/03 09/30/02 Amount Percent(%) --------- -------- -------- ----------- Salaries and employee benefits $ 3,784 $ 3,108 $ 676 21.75% Security guards 221 240 (19) (7.90) Net occupancy expense 713 717 (4) (0.47) Equipment expense 331 313 18 5.81 Data processing 486 482 4 0.80 Office supplies 115 99 16 15.79 Legal and professional 295 272 23 8.27 Advertising and public relations 190 210 (20) (9.20) Communication expenses 247 271 (24) (8.83) Other operating expenses 929 704 225 31.75 --------- -------- -------- ----- Total $ 7,311 $ 6,416 $ 895 13.94% ========= ======== ======== =====

Nine Months Ended Increase / (Decrease) -------------------------- -------------------------- 09/30/03 09/30/02 Amount Percent(%) --------- -------- -------- ------------ Salaries and employee benefits $ 10,527 8,926 $ 1,601 17.94% Security guards 661 716 (55) (7.65) Net occupancy expense 2,109 2,168 (59) (2.72) Equipment expense 1,046 1,043 3 0.29 Data processing 1,452 1,441 11 0.75 Office supplies 315 354 (40) (11.20) Legal and professional 710 965 (254) (26.42) Advertising and public relations 547 575 (28) (4.81) Communication related expense 764 763 1 0.14 Other operating expenses 2,333 1,778 555 31.23 --------- -------- -------- ----- Total $ 20,464 18,729 $ 1,735 9.26% ========= ======== ======== =====

INCOME TAX The effective tax rate for the third quarter of 2003 was 40.06% compared to 36.12% for the same period of 2002. The effective tax rate for the nine months ended September 30, 2003 was 40.03% compared to 38.81% for the same period of 2002. The effective tax rate fluctuations are strongly influenced by California state franchise taxes net of Federal tax benefits under the Water's Edge Unitary method. The Bank files its California tax return using the Water's Edge Unitary method. When computing its California franchise tax liability, the California law requires that the Bank consider the taxable income allocated from estimated combined net taxable income using the apportionment factor of property, payroll and revenues over combined property, payroll and revenue of its foreign-owned majority shareholder. FINANCIAL CONDITION The Bank's total assets were $1.1 billion at September 30, 2003, an increase of $120.8 million or 12.89% from the $937.0 million at December 31, 2002. The net increase is attributable to a $148.3 million or 21.71% increase in total gross loans, including loans held for sale, and offset by a $38.0 million or 60.8% decrease in Federal funds sold and a decrease of $2.6 million or 10.92% in cash and due from banks. Total deposits increased by $78.0 million or 10.26% to $838.0 million at September 30, 2003 from $760.0 million at December 31, 2002. Time certificates of deposit of $100,000 or more increased $47.6 million or 18.40% to $306.3 million at September 30, 2003 from $258.7 million at December 31, 2003. Noninterest bearing deposits increased $19.2 million or 8.57% to $242.5 million at September 30, 2003 from $223.4 million at December 31, 2003. Money market deposits and savings deposits increased $13.5 million or 7.90% to $183.9 million at September 30, 2003 from $170.5 million from December 31, 2002. The Bank's borrowings from the Federal Home Loan Bank were $105.0 million at September 30, 2003 compared to $70.0 million at December 31, 2002. Stockholders' equity increased $7.3 million or 7.27% to $108.2 million at September 30, 2003 from $100.9 million at December 31, 2002. INTEREST-EARNING ASSET MIX Total earning assets amounted to $1.0 billion at September 30, 2003, compared with $894.5 million at December 31, 2002, representing an increase of $120.3 million or 13.45%. The composition of the earning assets changed slightly at September 30, 2003 compared with December 31, 2002. The net loans as a percentage of total earning assets increased 7.39% to 80.95% and the percentage of Federal funds sold to the total earning assets decreased 65.45% to 2.41% at September 30, 2003 compared to December 31, 2002. On an average basis, interest-earning assets amounted to $1.0 billion, an increase of $148.5 million or 17.21% for the three months ended September 30, 2003 compared to $863.0 million for the same period of 2002. On an average basis, interest-earning assets amounted to $972.9 million, an increase of $177.6 million or 22.33% for the first nine months of 2003 compared to $795.3 million for the same period of 2002. The table below shows the changes in the earning asset mix as of the dates indicated:

(Dollars in thousands) As of 09/30/03 As of 12/31/02 -------------------------- ---------------------------- Types of earning assets Amount Percent(%) Amount Percent(%) ----------- --------- ---------- ---------- Federal funds sold $ 24,500 2.41% $ 62,500 6.99% Federal Home Loan Bank stock 5,790 0.57 3,538 0.40 Securities held-to-maturity 68,272 6.73 89,314 9.98 Securities available-for-sale 94,345 9.30 64,701 7.23 Net loans, including loans available for 821,464 80.95 674,258 75.38 sale Interest-bearing due from banks 466 0.04 211 0.02 ----------- ------ ---------- ------ Total earning assets $ 1,014,837 100.00% $ 894,522 100.00% =========== ====== ========== ======

SECURITIES The Bank classifies its securities as held-to-maturity or available-for-sale. The securities classified as held-to-maturity are those that the Bank has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. The securities that could be sold in response to changes in interest rate, increased loan demand, liquidity needs, capital requirements or other similar factors, are classified as securities available-for-sale. These securities are carried at fair value, with unrealized gains or losses reflected net of tax as a component of comprehensive income Accumulated other comprehensive income (net of tax) at September 30, 2003 was $53,421. Total investment securities increased $8.6 million or 5.59% to $162.6 million at September 30, 2003 from $154.0 million at December 31, 2002. During the third quarter of 2003, the Bank purchased available-for-sale securities in the amount of $31.9 million. The following table summarizes the amortized cost, fair value and distribution of the Bank's investment securities as of the dates indicated: INVESTMENT PORTFOLIO (Dollars in thousands)

As of 09/30/03 As of 12/31/02 ------------------------- -------------------------- Amortized Fair Amortized Fair Cost Value Cost Value --------- --------- --------- --------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ 1,002 $ 1,043 $ 1,003 $ 1,074 U.S. Government agencies 39,730 39,826 25,996 26,290 Mortgage-backed securities (1) 50,509 50,469 34,000 34,730 State and political subdivision 3,018 3,007 2,507 2,607 --------- --------- --------- --------- Total available-for-sale $ 94,259 $ 94,345 $ 63,506 $ 64,701 ========= ========= ========= ========= HELD-TO-MATURITY: Mortgage-backed securities (1) 68,272 68,323 89,314 90,799 --------- --------- --------- --------- Total held-to-maturity 68,272 68,323 89,314 90,799 --------- --------- --------- --------- Total investment securities $ 162,531 $ 162,668 $ 152,820 $ 155,500 ========= ========= ========= =========

- ----------------- (1) Principal balance may be prepaid before contracted maturity date. The following table summarizes the monthly and repricing schedule of the Bank's investment securities at their carrying values and their average weighted yield at September 30, 2003. INVESTMENT MATURITIES AND REPRICING SCHEDULE (Dollars in thousands) As of September 30, 2003

After One But After Five but Within One Year Within Five Years Within Ten Years After Ten Years Total ------------------ ------------------- ------------------ ------------------ ----------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) -------- -------- -------- --------- -------- -------- -------- -------- ------- -------- AVAILABLE-FOR-SALE: U.S. Treasury securities $ 1,043 5.82% $ % $ - -% $ - -% $ 1,043 5.82% U.S. Government agencies 34,904 2.83 4,922 3.00 - - 39,826 2.85 Mortgage-backed securities(2) 14,596 3.24 5,673 6.07 14,887 3.86 15,313 4.34 50,469 4.07 State and political subdivisions - - 1,029 6.17 1,978 2.76 3,007 3.93 -------- ---- -------- ---- -------- ---- -------- ---- ------- ---- Total available-for-sale $ 15,639 3.41% $ 41,606 3.35% $ 21,787 3.56% $ 15,313 4.34% $ 94,345 3.57% ======== ==== ======== ==== ======== ==== ======== ==== ======= ==== HELD-TO-MATURITY: Mortgage-backed securities(2) - - 58,652 4.10 - - 9,620 3.98 68,272 4.09 -------- ---- -------- ---- -------- ---- -------- ---- ------- ---- Total held-to-maturity - - 58,652 4.10 - - 9,620 3.98 68,272 4.09 -------- ---- -------- ---- -------- ---- -------- ---- ------- ---- Total investment securities $ 15,639 3.41% $100,258 3.79% $ 21,787 3.56% $ 24,933 4.20% 162,617 3.78% ======== ==== ======== ==== ======== ==== ======== ==== ======= ====

(5) Yield on tax-exempt obligations has not been computed on a tax equivalent basis because the percentage of tax-exempt securities is minimal. (6) The mortgage-backed securities reflect stated maturities and repricing schedule and not anticipated prepayments. LOANS The Bank experienced strong loan growth in the first nine months of 2003. The Bank achieved record loan production of $327.3 million during the first nine months of 2003 resulting in a $148.3 million increase in gross loans to $831.5 million at September 30, 2003 from $683.1 million at December 31, 2002. Total commercial and industrial loans increased $23.4 million or 18.63% to $148.7 million at September 30, 2003 from $125.4 million at December 31, 2002. Commercial real estate loans increased $123.3 million or 31.16% and residential mortgage loans decreased $30,000 or 0.08% during the first nine months of 2003. The following table sets forth the composition of the Bank's loan portfolio as of the dates indicated: LOAN PORTFOLIO COMPOSITION (Dollars in thousands)

As of 09/30/03 As of 12/31/02 ----------------------- ------------------------- Percent Percent Amount of Total Amount of Total --------- --------- --------- --------- Commercial and industrial $ 148,719 17.89% $ 125,363 18.35% Installment loans 21,300 2.56 21,225 3.11 Real estate loans: Commercial 519,134 62.44 395,807 57.94 Residential mortgage 37,429 4.50 37,459 5.48 Home equity 5,983 0.72 5,993 0.88 SBA 78,261 9.41 74,560 10.91 Other (1) 3,269 0.39 3,619 0.53 Trade Finance 15,330 1.84 12,488 1.83 Bills Bought 2,037 0.24 6,617 0.97 --------- ------ --------- ------ Total gross loans (2) $ 831,462 100.00% $ 683,131 100.00% ========= ====== ========= ======

- ----------------- (1) Consists predominantly of credit card loans. (2) Net of unearned income and participation loans sold. NON-PERFORMING ASSETS Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans and OREO. Total non-performing assets at September 30, 2003 decreased $734,000 to $1.3 million, compared with December 31, 2002. Total non-performing assets were 0.16% of total assets at September 30, 2003, compared to 0.30 % of total assets at December 31, 2002. As of September 30, 2003, the Bank had no OREO. The non-performing loan coverage ratio, defined as the allowance for loan losses to non-performing loans, increased to 773.76% as of September 30, 2003 from 437.96% at December 31, 2002. The following table provides information with respect to the components of the Bank's non-performing assets as of the dates indicated. NON-PERFORMING ASSETS (Dollars in thousands)

9/30/2003 12/31/2002 9/30/2002 --------- ---------- --------- NON-ACCRUAL LOANS: Commercial and industrial $ 1,013 $ 1,091 $ 1,342 Installment loans 15 28 30 Real estate loans: Commercial - - 2,273 Home mortgage 99 805 861 SBA 81 - 230 Trade Finance - 74 58 ------- ------- ------- Total $ 1,208 $ 1,998 $ 4,794

(Table continues on the following page.)

9/30/2003 12/31/2002 9/30/2002 --------- ---------- --------- LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING (AS TO PRINCIPAL OR INTEREST): Installment loans - - 16 Other 84 28 - ------ ------ ------ Total $ 84 $ 28 $ 16 ------ ------ ------ Total non-performing loans $1,292 $2,026 $4,810 Other real estate owned - - - ------ ------ ------ Total non-performing assets $1,292 $2,026 $4,810 ====== ====== ====== Non-performing loans as a percentage of total gross loans 0.16% 0.30% 0.73% Non-performing assets as a percentage of total gross loans and other real estate owned 0.16% 0.30% 0.73%

ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $10.0 million or 1.20% of total loans as of September 30, 2003 compared to $8.9 million or 1.30% of total loans at December 31, 2002. The following table presents information relating to the allowance for loan losses for the periods indicated:

(Dollars in thousands) YTD YTD YTD 09/30/03 12/31/02 09/30/02 -------- -------- -------- ALLOWANCE FOR LOAN LOSSES: Balance at beginning of period $ 8,873 $ 9,467 $ 9,467 Provision for loan losses 1,300 1,100 400 Loans charged-off (502) (1,805) (1,323) Recoveries of charged-off loans 326 111 98 ------- ------- -------- Balance at end of period $ 9,997 $ 8,873 $ 8,642 ======= ======= ======== RATIOS: Net loan charge-offs to average total loans 0.03% 0.28% 0.28% Provision for loan losses to average total loans 0.23 0.18 0.09 Allowance for loan losses to gross loans at end of period 1.20 1.30 1.32 Allowance for loan losses to total non-performing loans 773.76 437.96 179.67 Net loan charge-offs to allowance for loan losses at end of period 2.35 19.10 18.91 Net loan charge-offs to provision for loan losses 13.53 154.05 306.45

In determining the allowance for loan losses, management continues to assess the risk inherent in the loan portfolio, the possible impact of known and potential problem loans, and other factors such as portfolio composition, loan concentration, and trends in local economic conditions. The Bank formally assesses its allowance for loan losses on a quarterly basis. The allowance for loan losses begins with Management reviewing each individual classified and criticized loan in detail, and evaluating, among other things, the adequacy of collateral, payment record, current loan status and borrowers' financial capacity. A loan loss allowance is assigned to each impaired loan. Loans categorized as impaired from this quarterly allocation of loan loss allowance are based upon the specifics of the loans' circumstances, including updated collateral value, borrowers' or guarantors' financial capacity, payment record and recent conversations with the borrower. Additionally, each quarter the Bank updates its twelve-quarter loss migration analysis for its commercial loan pool, six-quarter loss migration analysis for its homogeneous loan pool and four-quarter loss migration analysis for its credit card loan pool to drive the rolling respective loan loss experience percentages. These loan pools are assigned an appropriate allowance factor based upon the Bank's historical charge off experience, other factors, and then accounts for qualitative adjustments that take into consideration current conditions. The allowance is maintained at a level the Bank considers adequate to cover inherent risk of probable loss associated with its loan portfolio under prevailing and anticipated economic conditions. Based on the Bank's evaluation process and the methodology to determine the level of the allowance for loan losses, management believes the allowance level as of September 30, 2003 to be adequate to absorb the incurred losses inherent in the loan portfolio. However, no assurance can be given that the Bank will not sustain losses in any given period which could be substantial in relation to the size of the allowance. DEPOSITS The Bank's total deposits amounted to $838.0 million at September 30, 2003, an increase of $78.0 million from $760.0 million at December 31, 2002. The Bank's average deposits increased $118.1 million or 16.42% to $837 million for the first nine months of 2003 from $719.3 million for the same period of 2002. The average money market accounts increased $59.2 million or 53.12% to $170.5 million for the first nine months of 2003 from $111.4 million for the same period of 2002. The average non-interest bearing deposits increased $26.3 million or 12.30% to $240.5 million for the first nine months of 2003 from $214.1 million for the same period of 2002. The ratio of average noninterest-bearing deposits to average total deposits was 26.34% for the first nine months of 2003 and 28.89% for the same period of 2002. The Bank's average total cost of deposits was 1.52% for the first nine months of 2003 and 1.73% for the same period of 2002. The Bank does not hold any brokered deposits. The following table illustrates the deposit mix as of the dates indicated:

(Dollars in thousands) As of September 30, 2003 As of December 31, 2002 ------------------------- ----------------------- Amount Percent Amount Percent --------- ------- --------- ------- Types of deposits: Demand, non-interest-bearing $ 242,528 28.94% $ 223,377 29.39% Money market accounts 137,790 16.44 126,272 16.61 Super Now 8,607 1.03 7,602 1.00 Savings 46,158 5.51 44,215 5.82 Time certificates of deposits of $100,000 or more 306,252 36.55 258,653 34.03 Other time deposits 96,632 11.53 99,877 13.15 --------- ------ --------- ------ Total deposits $ 837,967 100.00% $ 759,996 100.00% ========= ====== ========= ======

OTHER BORROWINGS The Bank's borrowings from Federal Home Loan Bank amounted to $105.0 million at September 30, 2003 and $70.0 million at December 31, 2002. CAPITAL RESOURCES As of September 30, 2003, stockholders' equity was $108.2 million or 10.23% of total assets, compared with $100.9 million or 10.77% as of December 31, 2002. The Bank is required to maintain a minimum ratio of qualifying total capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1 Risk-Based Capital Ratio"). As of September 30, 2003 and December 31, 2002, the Bank's Total Risk-Based Capital Ratios were 14.71% and 15.95%, respectively, and its Tier 1 Risk Based Capital Ratios were 13.46% and 14.70%, respectively. The Bank's regulatory capital continued to well exceed the regulatory minimum requirements on September 30, 2003; however, the Bank is no longer considered to be "well capitalized" as a result of Consent Agreement entered into with Federal Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal Proceedings." To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table and not be subject to any regulatory order, agreement or directive. Banks are also required to maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks that have received the highest rating of the five categories used by regulators to rate banks and are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans, and federal regulators may, however, set higher capital requirements when a bank's particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.40% and 11.56% at September 30, 2003 and December 31, 2002, respectively. The following table presents the Bank's regulatory capital amount and ratios as of September 30, 2003 and December 31, 2002.

AS OF SEPTEMBER 30, 2003 (DOLLARS IN THOUSANDS) ------------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS ------------------- ----------------------- ------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO --------- ------- -------- ----------- --------- ------------ Total capital (to risk- weighted assets) $ 118,106 14.71% $ 64,232 > or = 8.0% $ 80,290 > or = 10.0% Tier I capital (to risk- weighted assets) 108,109 13.46 32,127 > or = 4.0 48,191 > or = 6.0 Tier I capital (to average assets) 108,109 10.40 41,580 > or = 4.0 51,975 > or = 5.0 ========= ===== ======== ========== ========= ===========

AS OF DECEMBER 31, 2002 (DOLLARS IN THOUSANDS) ------------------------------------------------------------------------- TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSE ACTION PROVISIONS ------------------- ----------------------- ------------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO --------- ------- -------- ----------- --------- ------------ Total capital (to risk- weighted assets) $ 108,689 15.95% $ 54,515 > or = 8.0% $ 68,144 > or = 10.0% Tier I capital (to risk-weighted assets) 100,169 14.70 27,257 > or = 4.0 40,885 > or = 6.0 Tier I capital (to average assets) 100,169 11.56 34,671 > or = 4.0 43,338 > or = 5.0 ========= ===== ======== ========== ======== ===========

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is the Bank's ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Bank's principal sources of liquidity have been growth in deposits and proceeds from the maturity of securities and repayments from loans. To supplement its primary sources of liquidity, the Bank maintained $131.6 million of borrowing capacity under a collateralized line of credit with the Federal Home Loan Bank of San Francisco. At September 30, 2003, the Bank's available liquidity totaled $277.5 million, which was approximately 33.11% of total deposits and 89.92% of total volatile liabilities compared to $186.4 million at December 31, 2002, which was approximately 24.52% of total deposits and 71.85% of total volatile liabilities. The volatile liabilities are comprised of time certificates of deposit of $100,000 or more and other volatile deposits. The Bank's policy is to maintain a minimum fund availability to total deposit and borrowing ratio of 20% and a minimum fund availability to total volatile liability ratio of 50%. The Bank considers any excessive cash holdings or balances in due from banks, overnight Fed funds sold, uncollateralized available-for-sale securities and readily available Federal Home Loan Bank advances as funds availability. The Bank follows the regulatory definition of volatile liabilities, which is Jumbo CD's. The ratios of the average balance of Jumbo CD's to average total deposits for September 30, 2003 and December 31, 2002 were 32.06% and 33.99%, respectively. The Bank had a significant portion of its time deposits maturing within one year or less as of September 30, 2003. Management anticipates that there may be some outflow of these deposits upon maturity due to the keen competition in the Bank's market place. However, based on its historical runoff experience, the Bank expects the outflow will be minimal and can be replenished through its normal growth in deposits. Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending, investment and deposit taking activities. The Bank's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through analyzing the repricing characteristics of its loans, securities, and deposits on an on-going basis. One of the primary goals is to optimize net income under varying interest rate environments. The focus of this process is the development, analysis, implementation and monitoring of earnings enhancement strategies that provide stable earnings and capital levels during periods of changing interest rates. Management uses both interest rate sensitivity analysis, and a simulation model to measure and quantify the impact to the Bank's profitability on the market value of its assets and liabilities. The interest rate sensitivity analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice in a particular time interval. A liability sensitivity results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. At September 30, 2003, the Bank maintained positive one-year gap position of $57.0 million or 5.4% of total assets. This compared with a positive one-year gap position of $86.5 million or 9.23% of total assets at December 31, 2002. The increase in gap was primarily due to a net increase in rate sensitive assets over rate sensitive liabilities. Because the Bank's assets tend to reprice more frequently than its liabilities over a twelve months horizon, the Bank will realize lower net interest income in a falling rate environment. Since an interest rate sensitivity analysis does not measure the timing differences in the repricing of assets and liabilities, the Bank uses a simulation model to quantify the extent of the differences in the behavior of the lending and funding rates, so as to project future earnings or market values under alternative interest scenarios. The following table presents the interest rate sensitivity of the Bank's interest-earning assets and interest-bearing liabilities as of September 30, 2003 using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its contractual terms. Actual payment patterns may differ from contractual payment patterns.

INTEREST RATE SENSITIVITY ANALYSIS (Dollars in thousands) At September 30, 2003 --------------------- Amounts Subject to Repricing Within ----------------------------------- 3-12 After 5 0-3 Months Months 1-5 Years Years Total ---------- --------- --------- -------- ----------- INTEREST-EARNING ASSETS: Total Loans* $ 691,166 $ 5,894 $ 55,073 $ 79,689 $ 831,822 Federal Home Loan Bank Stock 5,790 -- -- -- 5,790 Investment securities 11,930 3,709 100,258 46,720 162,617 Federal Funds sold 24,500 -- -- -- 24,500 Interest-earning deposits 466 -- -- -- 466 ---------- --------- --------- -------- ----------- Total 733,852 9,603 155,331 126,409 1,025,195 INTEREST-BEARING LIABILITIES: Money market 137,790 -- -- -- 137,790 NOW 8,607 -- -- -- 8,607 Savings deposits 46,158 -- -- -- 46,158 Time deposits of $100,000 or more 128,806 172,699 4,747 -- 306,252 Other Time deposits 38,879 48,549 9,204 -- 96,632 Borrowed funds 70,000 35,000 -- -- 105,000 ---------- --------- --------- -------- ----------- Total $ 430,240 $ 256,248 $ 13,951 $ -- $ 700,439 ========== ========= ========= ======== =========== Interest rate sensitivity gap $ 303,612 $(246,645) $141,380 $126,409 $ 324,756 Cumulative interest rate sensitivity gap $ 303,612 $ 56,967 $198,347 $324,756 Cumulative interest rate sensitivity gap ratio as a percentage of total assets 28.70% 5.39% 18,75% 30.70%

*Loans including loans held- for-sale, unearned fees and excluding Non-Accrual Loans Although interest rate sensitivity gap is a useful measurement and contributes to effective asset and liability management, it is difficult to predict the effect of changing interest rates based solely on that measure. As a result, the Asset/Liability Management Committee also regularly uses simulation modeling as a tool to measure the sensitivity of earnings and net portfolio value ("NPV") to interest rate changes. Net portfolio value is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. The simulation model captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans and deposits, principal amortization, call options on securities, balance sheet growth assumptions and changes in rate relationships as various rate indices react differently to market rates. The simulation measures the volatility of net interest income and net portfolio value under immediate rising or falling market interest rate scenarios in 100 basis point increments. The following table sets forth the Bank's estimated net interest income over a twelve month period and NPV based on the indicated changes in market interest rates as of September 30, 2003.

% CHANGE IN ----------- CHANGE NET INTEREST INCOME % CHANGE IN ------ ------------------- ----------- (IN BASIS POINTS) (NEXT TWELVE MONTHS) NPV - ----------------- -------------------- --- +200 10.99% 8.07% +100 5.37 3.81 0 - - -100 -8.34 -1.23

As indicated above, the net interest income increases (decreases) as market interest rates rise (fall). This is due to the fact that the Bank maintained a positive gap and also a substantial portion of the interest earning assets reprice immediately after the rate change, interest-bearing liabilities reprice slower than interest-earning assets, and interest-bearing liabilities do not reprice to the same degree as interest earning assets, given a stated change in the interest rate. The NPV increases (declines) as the interest income increases (decreases) since the change in the discount rate has a greater impact on the change in the NPV than does the change in the cash flows. Management believes that the assumptions used by it to evaluate the vulnerability of the Bank's operations to changes in interest rates approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Bank's assets and liabilities and the estimated effects of changes in interest rates on the Bank's net interest income and NPV could vary substantially if different assumptions were used or actual experience differs from the historical experience on which they are based. The Bank's historical strategies in protecting both net interest income and economic value of equity investments from significant movements in interest rates have involved restructuring its investment portfolio and using FHLB advances. Bank policies also permit the purchase of rate caps and floors, and engaging in interest rate swaps, although the Bank has not yet engaged in either of these activities. At September 30, 2003 the Bank had no derivative instruments outstanding. ITEM 4. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our chief executive officer and chief financial officer directly supervised and participated in evaluating the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2003 and concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) CHANGES IN INTERNAL CONTROLS There were no significant changes in the Bank's internal controls our financial reporting during the quarter ended September 30, 2003 that could significantly affect these internal controls subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions. As a result, no corrective actions were taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by the General Counsel as to the current status of these claims or proceedings to which the Bank is a defendant, Management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on the financial condition of the Bank. The Bank has been subject to a Consent Order by the FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(1) since April 14, 2002. The Consent Order addresses actions necessary to correct certain Bank Secrecy Act ("BSA") compliance deficiencies including inadequate training and internal controls, and ineffective independent testing of such controls. Even before the Consent Order, the Bank had begun taking proactive steps to improve its BSA compliance. For example, the Bank implemented an enterprise-wide risk management infrastructure, which includes a comprehensive compliance and training program. This step was taken with the assistance of a leading financial services consulting firm, The Secura Group, which the Bank retained in November 2001 to advise and assist the Bank in its compliance efforts. To improve the overall efficiency and effectiveness of BSA monitoring, the Bank implemented an automated BSA tracking/monitoring system. In addition, the Bank is in the process of improving its due diligence efforts to identify and monitor high-risk accounts, internal controls to assure the accuracy and completeness of internal reports, and has intensified employee training. Finally, the Audit Committee has engaged Deloitte & Touche to conduct ongoing independent testing to validate the BSA monitoring controls, systems and processes including the implementation of the BSA Tracking System and also to oversee the bank-wide risk management. The Board of Directors, Management, Officers, and employees of the Bank are fully committed to complying with all of the terms of the Consent Order, and have been working and will continue to work closely with the FDIC towards this goal. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Korea Exchange Bank ("KEB"), which holds approximately 62% of the Bank's outstanding shares, recently accepted a capital infusion from Lone Star Fund IV (U.S.), L.P. and its affiliates (collectively, "Lone Star"), which resulted in Lone Star holding a majority of the outstanding voting stock of KEB. In connection with the infusion, KEB transferred all of the Bank shares that it owns to a trust pursuant to a trust agreement dated October 31, 2003, which was entered into between KEB, as grantor and Mr. L. Dale Crandall, as trustee. While KEB retains all of the economic interest in the Bank shares transferred to the trust, the trust agreement gives the trustee voting and dispositive power over the Bank shares and directs the trustee to dispose of all or substantially all of such interest either directly through a sale or in connection with a merger or similar transaction of the Bank with a third party. The transfer of the shares to the trustee does not affect the Bank's day-to-day business and operations. The Board of Directors of the Bank has appointed a Special Committee comprised of its independent, outside directors who are not affiliated with KEB to evaluate any potential transaction that may involve the Bank. The Special Committee will participate with the trustee in evaluating possible alternatives and transactions. The Special Committee has engaged Friedman, Billings, Ramsey & Co., Inc. as its financial advisor and Manatt, Phelps & Phillips, LLP as legal counsel. There can be no assurance that any disposition by the trustee of the Bank shares will involve a merger or similar transaction of the Bank. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (c) Exhibit

Exhibit Table Reference Number Item - ---------------- ---- 3.1 Articles of Incorporation, as Amended(1)....................... 3.2 2002 Amendment to Articles of Incorporation(2)................. 3.3 Bylaws, as Amended(1).......................................... 3.4 2001 Amendment to Bylaws(3).................................... 4.1 Specimen of Common Stock Certificate(1)........................ 10.1 2000 Stock Option Plan(1)...................................... 10.2 401(k) Plan(3)................................................. 10.3 Lease for Corporate Headquarters(1)............................ 10.4 Lease for Western Branch Office(1)............................. 10.5 Lease for Downtown Branch Office(1)............................ 10.6 Lease for Van Nuys Branch Office(1)............................ 10.7 Lease for Torrance Branch Office(1)............................ 10.8 Lease for Rowland Heights Branch Office(1)..................... 11.1 Statement Regarding Computation of Earnings Per Share(4)....... 31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002..................................... 31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002..................................... 32.1 Certification of Chief Financial Officer and Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.........

(b) Reports on Form 8-K - ----------------- (1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration Statement, as filed with the FDIC on June 12, 2000. (2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed with the FDIC on April 1, 2003. (3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as filed with the FDIC on April 20, 2001. (4) The information required by this exhibit is incorporated herein by reference from Note of the Bank's Financial Statements included herein. On August 27, 2003, the Bank filed a report on Form 8-K with respect to the issuance of a press release by Korea Exchange Bank, which holds approximately 62% of the Bank's outstanding shares ("KEB"), with respect to an agreement entered into between KEB and Lone Star under which Lone Star would acquire 51% of the issued and outstanding shares of KEB from KEB and two of its largest shareholders. On September 16, 2003, the Bank filed a report on Form 8-K with respect to a special shareholders meeting of KEB at which KEB obtained shareholders approval of the agreement between KEB and Lone Star. On November 3, 2003, the Bank filed a report on Form 8-K reporting that Lone Star had acquired the majority of the shares of KEB. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this to report be signed on its behalf by the undersigned thereunto duly authorized. Pacific Union Bank Date: November 13, 2003 By: /s/ Dianne Kim ---------------------------------------------------- Dianne Kim Senior Vice President and Chief Financial Officer (Principal financial or accounting officer and duly authorized signatory) EX-99.5 7 v96038exv99w5.txt EXHIBIT 99.5 EXHIBIT 99.5 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 8, 2002 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 5. OTHER EVENTS The Board of Directors of Pacific Union Bank has become aware of recent foreign and domestic Korean language press articles describing the intentions of its majority stockholder, Korea Exchange Bank ("KEB"), concerning the Bank's management. Although it is the general policy of the Bank not to respond to such rumors or speculate on their accuracy, Mr. Allan E. Dalshaug, Chairman of the Board, released the following statement to clarify the status of management at Pacific Union Bank: "The Board has engaged in ongoing discussions with KEB concerning various means of building shareholder value. Management continuity and the localization of operations are considered important factors in improving competitiveness and have been part of the Bank's strategic goals since its IPO in 2000. As part of the Bank's ongoing efforts to achieve these goals, the Board and KEB have concluded that it would be desirable for the Bank to retain a President & CEO experienced in American community banking. Accordingly, KEB will no longer recommend its retired executives to serve as president of the Bank. "To implement this change, the Board has formed a Committee to determine a comprehensive selection process and initiate a competitive search for a qualified candidate with extensive experience in American community banking. Although the outcome cannot be guaranteed, the Board hopes to locate a highly qualified individual who will serve as President & CEO for an extended period of time, subject to satisfactory performance reviews, and who will be held accountable for the ongoing success of the Bank as well as implementing the Board's strategic initiatives. "Further," Mr. Dalshaug stated, "as the Bank's majority shareholder, KEB has indicated, it intends to continue its practice of recommending and voting for KEB senior executives and KEB retirees to serve as directors of the Bank. KEB indicated it will recommend one of its nominated directors to serve as the Chairman of the Board. The current Board has agreed that such director will be nominated to serve as Chairman following the annual meeting of shareholders." Pacific Union Bank is a California state-chartered commercial bank headquartered in Los Angeles, California, which commenced operations in September 1974. The Bank's primary market includes the greater Los Angeles metropolitan area, Orange County, Santa Clara County and the San Francisco metropolitan area. Through its network of 12 full-service branch offices, and a loan production office in Seattle, Washington, the Bank provides a wide range of commercial and consumer banking services to the Korean-American communities. The Bank's primary focus is on its core customer base of small and medium-sized Korean-American businesses, professionals and other individuals. The Bank places a particular emphasis on the growth of its low cost core-deposit base and the origination of commercial and residential real estate loans. For additional information, visit the web site for Pacific Union Bank located at www.pacificunionbank.com. This release contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "estimate," "expect", "intend," anticipate" and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates, which they were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements. SIGNATURE 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. Pacific Union Bank Dated: April 9, 2003 By: /s/ Dianne Kim -------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.6 8 v96038exv99w6.txt EXHIBIT 99.6 EXHIBIT 99.6 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 21, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 5. OTHER EVENTS Mr. Woon Seok Hyun has announced his intention to resign as the Bank's Chief Executive Officer, President, and Director. His resignation will be effective as of May 22, 2003. Mr. Hyun has served as the Bank's CEO since May 2001. Under Mr. Hyun's leadership, total assets grew to $1.0 billion at April 10, 2003 from $805.8 million at March 31, 2001. Total loans increased to $733.8 million at April 10, 2003 from $498.2 million at March 31, 2001. Asset quality remained strong during this period, despite a very difficult economic environment. He focused on increasing low cost deposits and improved the deposit mix at the Bank. During this period, the Bank was included in the Russell 3000 index for the first time, and was selected as a Top 25 Los Angeles County-Based Bank. Mr. Hyun also implemented an ongoing strategic planning process. The Board expresses its appreciation for Mr. Hyun's service and accomplishments. As previously reported, the Board had formed a CEO Search Committee as part of an effort to "localize" the CEO position. The Search Committee is actively seeking potential qualified candidates. In light of Mr. Hyun's resignation, the Board has selected an independent Director, Mr. David Warner, to serve as an Interim CEO, subject to FDIC non-disapproval, from the effective date of Mr. Hyun's resignation until a permanent CEO is appointed. Mr. Warner has in excess of eight years of experience in the banking community in Seoul, Korea. He was selected as Deputy President and Chief Financial Officer of Seoul Bank in Seoul, Korea as part of its reorganization team. He also served as Advisor/Director of the Korea Development Bank and was Country Manager for the First National Bank of Chicago. Mr. Warner has extensive experience in the Financial Services Industry as well. He has approximately 30 years of experience including leadership positions with the First National Bank of Chicago in the United States, Hong Kong, Korea, and other Asian countries. He also spent a number of years in Hong Kong with ChinaVest Limited, managing investments in their venture capital portfolio and evaluating investment opportunities. Pacific Union Bank has benefited from Mr. Warner's varied experience and financial expertise since May 2002, when he joined the Bank as an independent Director. As a Director, he has actively participated in setting the Bank's strategic direction and initiatives and has been an instrumental member of the Audit Committee. Given his unique background, the Board believes that Mr. Warner will make a significant contribution to the Bank in his tenure as Interim CEO. Pacific Union Bank is a California state-chartered commercial bank headquartered in Los Angeles, California, which commenced operations in September 1974. The Bank's primary market includes the greater Los Angeles metropolitan area, Orange County, Santa Clara County and the San Francisco metropolitan area. Through its network of 12 full-service branch offices, and a loan production office in Seattle, Washington, the Bank provides a wide range of commercial and consumer banking services to the Korean-American communities. The Bank's primary focus is on its core customer base of small and medium-sized Korean-American businesses, professionals and other individuals. The Bank places a particular emphasis on the growth of its low cost core-deposit base and the origination of commercial and residential real estate loans. For additional information, visit the web site for Pacific Union Bank located at www.pacificunionbank.com. This release contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "estimate," "expect", "intend," anticipate" and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates, which they were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) EXHIBITS 99.1 Press release concerning earnings for March 31, 2003 calendar quarter ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On April 21, 2003 the Bank issued an earnings release concerning its results of operations and financial condition as of and for the calendar quarter ended March 31, 2003. A copy of the release is attached as Exhibit 99.1. EXHIBIT INDEX

Exhibit No. Description Page - ----------- ----------- ---- 99.1 Press release concerning earnings for March 31, 2003 calendar quarter.

SIGNATURE 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. Pacific Union Bank Dated: April 22, 2003 By: /s/ Dianne Kim -------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.7 9 v96038exv99w7.txt EXHIBIT 99.7 EXHIBIT 99.7 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) July 23, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. At its Audit Committee meeting on July 21, 2003, the Audit Committee of Pacific Union Bank ("the Bank"), Los Angeles, California, selected the accounting firm of KPMG, LLP ("KPMG"), as independent auditors for the Bank's 2003 fiscal year. At the same meeting the Audit Committee dismissed PricewaterhouseCoopers LLP ("PWC") as independent auditors for the Bank. PWC audited the financial statements for the Bank for the year ended December 31, 2002. The reports of PWC on the financial statements for the past year contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2002 and the subsequent interim period January 1, 2003 through July 21, 2003, there were no disagreements between PWC and the Bank on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreements in connection with its report on the financial statements. KPMG had served the Bank as its independent auditors and audited the financial statements since the inception of the Bank through the fiscal year ended December 31, 2001. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (d) EXHIBITS 16 Letter from PWC, LLP 99.1 Press release concerning earnings for June 30, 2003 calendar quarter ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On July 23, 2003 the Bank issued an earnings release concerning its results of operations and financial condition as of and for the calendar quarter ended June 30, 2003. A copy of the release is attached as Exhibit 99.1. EXHIBIT INDEX

Exhibit No. Description Page - ----------- ----------- ---- 16 Letter from PWC, LLP 99.1 Press release concerning earnings for June 30, 2003 calendar 3 quarter.

SIGNATURE 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. Pacific Union Bank Dated: July 25, 2003 By: /s/ Dianne Kim --------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.8 10 v96038exv99w8.txt EXHIBIT 99.8 EXHIBIT 99.8 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) August 27, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 5. OTHER EVENTS On August 27, 2003, Korea Exchange Bank, which holds approximately 62% of the registrant's outstanding shares, issued a press release that it entered into an agreement with Lone Star under which Lone Star has agreed to inject additional capital for new shares of KEB stock and to contemporaneously purchase preferred shares of KEB stock from two of its shareholders, The Export-Import Bank of Korea and Commerzbank, which would make Lone Star the largest shareholder of KEB holding 51% of the total issued and outstanding shares of KEB. KEB will hold a shareholders meeting on September 16, 2003. A copy of the release is attached as Exhibit 99.1. SIGNATURE 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. Pacific Union Bank Dated: August 28, 2003 By: /s/ Dianne Kim -------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.9 11 v96038exv99w9.txt EXHIBIT 99.9 EXHIBIT 99.9 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 19, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 5. OTHER EVENTS The Bank has learned that on September 16, 2003 (Korea Time) Korea Exchange Bank, which holds approximately 62% of the registrant's outstanding shares, held a special shareholders meeting and obtained shareholder approval of its proposed agreement with Lone Star. Under the agreement, Lone Star would inject additional capital for new shares of KEB stock and contemporaneously purchase preferred shares from two of its current shareholders, which would make Lone Star the largest shareholder holding 51% of the total outstanding shares of KEB. The KEB shareholders also elected a new slate of ten directors. A copy of the release is attached as Exhibit 99.1. SIGNATURE 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. Pacific Union Bank Dated: September 19, 2003 By: /s/ Dianne Kim -------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.10 12 v96038exv99w10.txt EXHIBIT 99.10 EXHIBIT 99.10 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20006 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 9, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA N/A 95-2888370 ---------- --- ---------- (State or other jurisdiction (Commission file No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) (Former name or former address, if changed since last report) Not applicable ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE As previously reported, on October 31, 2003, Korea Exchange Bank ("KEB") transferred (the "Transfer") 6,624,052 shares of common stock (the "Shares") of Registrant, representing 62.1% of the Registrant's issued and outstanding common stock at that time, to a trust (the "Trust"). The Trust was created pursuant to a Trust Agreement, dated as of October 31, 2003 (the "Trust Agreement"), by and between KEB, as grantor, and L. Dale Crandall, as trustee (the "Trustee"). No consideration was paid by the Trustee or the Trust for the Shares in connection with the Transfer, and KEB, as sole beneficiary under the Trust, retains the economic benefit of the Shares. Pursuant to the Trust Agreement, the Trustee has the sole power to vote or to direct the vote and to dispose or to direct the disposition of the Shares. The Trustee, on behalf of the Trust, filed a Schedule 13D with the FDIC on November 10, 2003, in connection with the transactions contemplated by the Transfer. On December 9, 2003, the Trustee filed Amendment No. 1 to his Schedule 13D, disclosing that in discussions with the special committee of the board of directors of the Registrant, the Trustee orally indicated that he will not pursue a transaction that excludes the minority shareholders of the Registrant if a financially viable alternative transaction is available that includes all shareholders of the Registrant. There can be no assurance that any disposition of the Shares will involve a merger or other transaction that includes all shareholders of the Registrant. SIGNATURE 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. Pacific Union Bank Dated: December 10, 2003 By: /s/ Dianne Kim -------------- Dianne Kim, Senior Vice President and Chief Financial Officer EX-99.11 13 v96038exv99w11.txt EXHIBIT 99.11 EXHIBIT 99.11 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 22, 2003 PACIFIC UNION BANK ------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 21765 95-2888370 ---------- ----- ---------- (State or other jurisdiction (FDIC Certificate No.) (I.R.S. Employee of incorporation or organization) Identification No.) 3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010 --------------------------------------------------------- (Address of principal executive offices) (Zip code) (213) 385-0909 -------------- (Registrant's telephone number including area code) Not applicable -------------- (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS On December 22, 2003, Pacific Union Bank, a California banking corporation ("PUB"), Hanmi Financial Corporation, a Delaware corporation ("Hanmi"), and Hanmi Bank, a California banking corporation and wholly owned subsidiary of Hanmi ("Hanmi Bank"), entered into an Agreement and Plan of Merger, dated as of December 22, 2003 (the "Merger Agreement"), pursuant to which PUB will merge with and into Hanmi Bank, with Hanmi Bank surviving the merger. In connection with the Merger Agreement, Hanmi and the trust (the "Trust") that holds the 6,624,052 shares of PUB common stock formerly held by Korea Exchange Bank ("KEB"), have entered into a Voting and Sale Agreement dated as of December 22, 2003, pursuant to which the Trust has agreed to vote its shares of PUB common stock in favor of the merger and the Merger Agreement, and to sell a majority of those shares to Hanmi for cash concurrently with the closing of the merger. Concurrently with the execution of these agreements, Hanmi entered into securities purchase agreements with several investors pursuant to which these investors have agreed to buy, and Hanmi has agreed to issue and sell, concurrently with the closing of the merger, an aggregate of 3,947,369 shares of Hanmi's common stock for $19 per share in cash. These investors include five members of Hanmi's board of directors, who have collectively agreed to purchase 430,326 shares of Hanmi's common stock for $8,176,194. Hanmi also entered into an agreement with Trapeza Funding V, LLC ("Trapeza") whereby Trapeza has committed to purchase trust preferred securities issued by Hanmi in an amount of up to $60 million. Hanmi expects to issue half of these trust preferred securities in January, with the balance issued concurrently with the closing of the merger. In connection with the Merger Agreement, all members of Hanmi's board of directors holding shares of Hanmi's common stock, and collectively holding a total of approximately 32% of the outstanding shares of Hanmi's common stock, entered into voting agreements with PUB pursuant to which these directors agreed to vote all of their shares of Hanmi common stock in favor of the issuance of Hanmi common stock pursuant to the merger and the financing transactions related thereto. A joint press release announcing the execution of the Merger Agreement and the related agreements was issued on December 22, 2003. The information in the press release is incorporated herein by reference. A copy of the joint press release is attached hereto as Exhibit 99.1. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired: None (b) Pro Forma Financial Information: None (c) Exhibits: The following exhibits are furnished in accordance with Item 601 of Regulation S-K. EXHIBIT NO. DESCRIPTION - ---------- ----------- 2.1 Agreement and Plan of Merger, dated as of December 22, 2003, by and among Pacific Union Bank, Hanmi Financial Corporation and Hanmi Bank. 2.2 Voting and Sale Agreement, dated as of December 22, 2003, by and between Hanmi Financial Corporation and the Trust established pursuant to the Trust Agreement dated as of October 31, 2003 between Korea Exchange Bank and Mr. L. Dale Crandall. 99.1 Joint Press Release dated December 22, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized. Pacific Union Bank (REGISTRANT) Dated: December 22, 2003 By: /s/ David B. Warner ------------------- David B. Warner, President and Chief Executive Officer INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Agreement and Plan of Merger, dated as of December 22, 2003, by and among Pacific Union Bank, Hanmi Financial Corporation and Hanmi Bank. 2.2 Voting and Sale Agreement, dated as of December 22, 2003, by and between Hanmi Financial Corporation and the Trust established pursuant to the Trust Agreement dated as of October 31, 2003 between Korea Exchange Bank and Mr. L. Dale Crandall. 99.1 Joint Press Release dated December 22, 2003. EX-99.12 14 v96038exv99w12.txt EXHIBIT 99.12 EXHIBIT 99.12 THE FOLLOWING IS A DESCRIPTION OF PACIFIC UNION BANK'S CAPITAL STOCK TAKEN FROM PACIFIC UNION BANK'S FORM 10 FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED The authorized capital stock of the Bank consists of 30,000,000 shares of Common Stock, par value $6.00 per share. As of June 2, 2000, there were issued and outstanding 6,666,667 shares of the Bank's Common Stock. A summary of the rights, preferences, privileges and restrictions of the Bank's Common Stock is set forth below. DIVIDENDS The Bank can pay dividends as and when declared by the Board of Directors, subject to compliance with limitations imposed by law. Each share of Common Stock has the right to participate equally in dividends declared by the Board of Directors out of funds legally available therefor. The Board of Directors does not anticipate paying cash dividends for the foreseeable future. See "Item 9 -- Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters -- Dividends" herein. VOTING RIGHTS All voting rights are vested in the holders of the Common Stock. Each holder of Common Stock is entitled to one vote for each share of Common Stock standing in his name on the books of the Bank on any matter submitted to the vote of the shareholders, except that in connection with the election of directors, shares are entitled to be voted cumulatively if a candidate's name has been placed properly in nomination prior to the voting and a shareholder present at the meeting gives notice of his or her intention to vote cumulatively. Cumulative voting entitles a shareholder to give one nominee as many votes as is equal to the number of directors to be elected multiplied by the number of shares owned by such shareholder, or to distribute his or her votes on the same principle between or among two or more nominees as he or she deems appropriate. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected under cumulative voting. KEB has entered into a voting agreement with the Bank specifying that KEB agrees to not vote its shares at the Bank's 2001 Annual Meeting of Shareholders for more than four nominees for director who would not be outside directors. The voting agreement does not limit KEB from voting its shares for any nominees who would be outside directors. LIQUIDATION In the event of a voluntary or involuntary liquidation, dissolution or winding up of the corporation, after distribution in full of the preferential amounts to be distributed to the holders of all classes and series of stock entitled thereto and to the holders of capital notes, if any, as provided for in the California Financial Code, the holders of the Common Stock shall be entitled to receive all the remaining assets of the corporation. ABSENCE OF PREEMPTIVE RIGHTS Holders of the Common Stock of the Bank do not have preemptive rights to subscribe for additional shares on a pro rata basis when and if such additional shares are offered for sale by the Bank. MISCELLANEOUS Each share of Common Stock has the same rights, preferences, and privileges as every other share, and is entitled to one vote at any meeting of shareholders (except as described above). The Common Stock has no conversion or redemption rights or sinking fund provisions applicable thereto. All of the shares of Common Stock outstanding are fully paid and non-assessable. California law prohibits a California state-chartered bank from lending on the security of, or for the purpose of purchasing, its own stock and from purchasing shares of its own stock unless approved in advance by the Commissioner or unless such purchase in necessary to prevent loss to the bank on debts previously contracted in good faith. The Bank utilizes U. S. Stock Transfer Corp., Glendale, California, as its transfer agent. -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    EXHIBIT 99.1

- --------------------------------------------------------------------------------

                      FEDERAL DEPOSIT INSURANCE CORPORATION
                             WASHINGTON, D.C. 20006
- --------------------------------------------------------------------------------

                                   FORM 10-K/A

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                          FDIC Certificate Number 21765

                               PACIFIC UNION BANK
             (Exact name of registrant as specified in its charter)

        CALIFORNIA                                      95-2888370
State or other jurisdiction of             I.R.S. Employer Identification Number
incorporation or organization

      3530 WILSHIRE BLVD. #1800                           90010
       LOS ANGELES, CALIFORNIA                           Zip Code
Address of principal executive offices

                                 (213) 385-0909
               Registrant's telephone number, including area code

        Securities registered pursuant to Section 12(b) of the Act: None

       Securities registered pursuant to Section 12(g) of the Act: Common
                            Stock- $6.00 Par Value.
                           --------------------------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [x] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).

                                 Yes [ ] No [x]

         The aggregate market value of Pacific Union Bank (PUBB) common stock
held by non-affiliates was approximately $46,793,640 as of March 13, 2003.

         The number of shares of Common Stock of the registrant outstanding as
of March 13, 2003 was 10,621,554.

         Documents Incorporated by Reference: None

              This Annual Report consists of a total of 79 pages.

                     The Exhibit Index appears on page 75.

- --------------------------------------------------------------------------------
This Report on Form 10-K is being amended to include all of the information
called for in Items 10 through 13, which will no longer be incorporated by
reference to the Bank's definitive proxy materials for the 2003 Annual Meeting
of Shareholders.



                                TABLE OF CONTENTS

                                                                                               
PART I

          Item 1.  Business......................................................................

          Item 2.  Properties....................................................................

          Item 3.  Legal Proceedings.............................................................

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

PART II

          Item 5.  Market for Registrant's Common Equity and Related Stockholders Matters........

          Item 6.  Selected Financial Data.......................................................

          Item 7. Management's Discussion and Analysis of Financial Condition
                       and Results of  Operation.................................................

          Item 7A. Quantitative and Qualitative Disclosures about Market Risk....................

          Item 8.  Financial Statements and Supplementary Data...................................

          Item 9. Changes in and Disagreements with Accountants on
                       Accounting and Financial Disclosure.......................................

PART III.........................................................................................

          Item 10. Directors and Executive Officers of the Registrant............................

          Item 11. Executive Compensation........................................................

          Item 12. Security Ownership of Certain Beneficial Owners and Management................

          Item 13. Certain Relationships and Related Transactions................................

          Item 14. Controls and Procedures.......................................................

PART IV..........................................................................................

          Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............

SIGNATURES.......................................................................................

CERTIFICATIONS OF DISCLOSURE CONTROLS AND PROCEDURES.............................................

INDEX TO EXHIBITS................................................................................





                                     PART I

ITEM 1. BUSINESS

GENERAL

         Pacific Union Bank is a California state-chartered commercial bank
headquartered in Los Angeles, California, which commenced operations in
September 1974. The Bank's primary market includes the greater Los Angeles
metropolitan area, Orange County, Santa Clara County and the San Francisco
metropolitan area. It is primarily focused in areas with high concentrations of
Korean-Americans. In May 2000, the Bank changed its name from "California Korea
Bank" to "Pacific Union Bank" in order to reflect the Bank's expectation of
expanding operations beyond the State of California. The Bank currently has 12
full service branch offices, including four branches within the area of Los
Angeles' Koreatown, and one in Downtown Los Angeles. Additional Southern
California branch offices are located in Garden Grove, Van Nuys, Torrance,
Rowland Heights and Cerritos. The two Northern California branch offices are
located in Santa Clara and San Francisco. The Bank also has a loan production
office ("LPO") in Seattle, Washington.

         The Bank's Corporate Headquarters is located at 3530 Wilshire
Boulevard, Suite1800, Los Angeles, California 90010 and its main telephone
number is (213) 385-0909. At December 31, 2002, the Bank had total assets of
$937.0 million, total deposits of $760.0 million and total loans of $683.1
million. The Bank's deposit accounts are insured under the Federal Deposit
Insurance Act, up to the maximum applicable limits thereof. The Bank is not a
member of the Federal Reserve System.

         In August 2000 the Bank completed an initial public offering of
1,935,000 newly authorized shares of its Common Stock raising an aggregate of
approximately $13.5 million in net proceeds for the Bank, after the deduction of
underwriting discounts and commissions, but before the deduction of expenses of
the offering. In addition, the Bank's major shareholder, Korea Exchange Bank
("KEB"), which owned 100% of the Bank's issued and outstanding shares of Common
Stock prior to the offering, sold an aggregate of 1,290,000 of its shares in the
public offering, the proceeds from which sale were retained by KEB. KEB
currently owns approximately 62.4% of the issued and outstanding shares of the
Bank's Common Stock. Upon the effectiveness of the initial public offering, the
Bank's Common Stock was listed on the Nasdaq National Market and trades on the
Nasdaq exchange, other primary exchanges and electronic communication networks
under the symbol PUBB.

         Through its network of 12 full-service branch offices, the Bank
provides a wide range of commercial and consumer banking services to the
Korean-American communities which it serves. The Bank's primary focus is on its
core customer base of small and medium-sized Korean-American businesses,
professionals and other individuals. The Bank places a particular emphasis on
the growth of its low cost core-deposit base and the origination of commercial
and residential real estate loans. The Bank offers Korean/English bilingual
services to its customers and has a network of ATMs located in eight of its
branch offices.

          The Bank engages in a full complement of lending activities, including
the making of residential and commercial real estate loans, commercial loans,
trade finance, working capital lines, SBA loans, automobile loans, credit card
and other personal loans. The Bank funds its lending activities primarily with
retail deposits obtained through the Bank's branch network and, to a lesser
extent, advances from the Federal Home Loan Bank ("FHLB") of San Francisco. The
Bank's deposit products include demand deposit accounts, savings accounts, time
certificates of deposit and fixed maturity installment savings. The Bank also
offers safe deposit boxes, wire transfer services, travelers' checks, debit
cards, cash management services and merchant deposit services.

         Management of the Bank does not believe there is a significant demand
for additional trust services in its service area, and the Bank does not operate
or have any present intention to seek authority to operate a Trust Department.

         The Bank has grown almost exclusively by establishing de novo
full-service branch offices and LPOs. Management may consider acquisitions of
other institutions or of branches of such institutions to strengthen the Bank's
presence and further expand and diversify its customer base out of state. For
establishment of branches outside the state of California, acquisition would
most likely be the only permissible means in any states in which the Bank would
be interested. The Bank has not currently identified any new markets, within or
outside the State of California, other than as



set forth below, in which it intends to acquire or establish a new branch
office. The Bank was in the process in 2000 of negotiating with KEB to acquire
certain assets and assume certain liabilities of one of KEB's FDIC insured
branches in New York, New York (the "KEB branch"). In May 2000, KEB together
with its U.S. Branches entered into a consent order to rectify deficiencies of
the Bank Secrecy Act ("BSA") with the Federal Reserve Board and the relevant
state banking authorities, including the California Department of Financial
Institutions, as a result of which the Bank determined to suspend negotiation
with respect to the acquisition of the KEB branch. Subsequently, in March 2002,
the Bank entered into a similar consent order concerning BSA deficiencies (see
Item 3. "Legal Proceedings" below). The Management intends to reevaluate the
proposed acquisition of the KEB branch as soon as it is practicable to do so
following the lifting of the consent orders; however, there can be no assurance
that the consent orders will be lifted in the near future or that if lifted the
Bank and KEB will determine to proceed with the acquisition of the assets and
liabilities of the KEB branch.

         The Bank holds no patents or licenses (other than licenses required to
be obtained from appropriate bank regulatory agencies), franchises, or
concessions. The Bank's business is not seasonal. The Bank is not dependent on a
single customer or group of related customers for a material portion of its
deposits, nor is a material portion of the Bank's loans concentrated within a
single industry or group of related industries. There has been no material
effect upon the Bank's capital expenditures, earnings, or competitive position
as a result of federal, state, or local environmental regulation.

         The Bank has no plans regarding a new line of business requiring the
investment of a material amount of total assets.

         The officers and employees of the Bank are engaged continually in
marketing activities, including the evaluation and development of new services,
which enable the Bank to retain and improve its competitive position in its
service area. The Bank has not engaged in any material research activities
relating to the development of new services or the improvement of existing
banking services during the last two fiscal years.

DEPOSIT SERVICES

         The Bank offers a wide variety of deposit products including
noninterest-bearing demand accounts, money market accounts, Super NOW accounts,
savings accounts and certificates of deposit. As of December 31, 2002, the Bank
had approximately 45,900 deposit accounts with an average balance per account of
$17,000, compared to 45,200 deposit accounts with an average balance of $15,000
per account at December 31, 2001. At December 31, 2002, the Bank's deposits
consisted of $223.4 million or 29.4% in noninterest-bearing demand accounts;
$126.3 million or 16.6% in money market accounts; $7.6 million or 1.0% in Super
NOW accounts; $44.2 million or 5.8% in savings accounts and $358.5 million or
47.2% in time certificates of deposit. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Deposits."

         Most of the Bank's deposits are received from individuals,
business-related sources and some municipal entities. This results in a
relatively modest average deposit balance, but makes the Bank less subject to
adverse effects from the loss of a substantial depositor who may be seeking
higher yields in other markets or who may otherwise have need of money on
deposit with the Bank, especially during periods of inflation or conservative
monetary policies.

LENDING ACTIVITIES

         The Bank engages in a full complement of lending activities, including
residential and commercial real estate loans, commercial loans, trade finance,
working capital lines, SBA loans, automobile loans, credit card and other
personal loans. As of December 31, 2002, the principal areas in which the Bank
directed its lending activities, and the percentage of the total loan portfolio
for which each of these areas was responsible, were as follows: (i) commercial
real estate loans 57.9%; (ii) commercial and industrial loans 18.4%; (iii) SBA
loans 10.9%; (iv) residential estate loans 5.5%; and (v) "Bills Bought"
(extensions of credit to banks in South Korea in the form of letters of credit
discount transactions) 1.0%. A detailed description of the Bank's lending
activities is included in Item 7 --" "Management's Discussion and Analysis of
Financial Condition and Results of Operations(Y)Financial Condition(Y)Loan
Portfolio" below.



INTERNET BANKING

          In January 2001, the Bank introduced an Internet banking service. The
Internet banking service allows our customers to access their loan and deposit
accounts through the Internet. Customers are able to obtain transaction history,
account information and transfer funds between accounts. In April 2001, bill
payment through the Internet was introduced which allows the customer to make
various payments. We are in the process of implementing Cash Management Service
via the Internet and expect to complete this in the near future. Cash Management
Service via the Internet is designed to support the cash management needs of
small business customers by making their companies' finances more easily and
efficiently accessible using the Internet. The Bank continues to review and
implement new products and delivery channels using information technology.

                                  COMPETITION

         The banking business in the Bank's present and intended future market
areas is highly competitive with respect to virtually all products and services
and has become increasingly so in recent years. While the banking market in the
Bank's primary market area is generally dominated by a relatively small number
of major banks with many offices operating over a wide geographic area, the
Bank's direct competitors in its niche market tend to be similarly sized
community banks which also focus their businesses on Korean-American consumers
and businesses.

         There is a high level of competition within this specific niche. In the
greater Los Angeles metropolitan area, the Bank's main competitors are seven
locally owned and operated Korean-American banks including a bank which was
opened in 2002 and one subsidiary of a South Korean bank. Currently, there is
one Korean-American bank in the process of forming in the Los Angeles
metropolitan area. In 2002, one additional local Korean-American bank servicing
Orange County was opened. These banks have branches located in many of the same
neighborhoods as the Bank, provide similar types of products and services and
use the same Korean language publications and media for their marketing
purposes. A less significant source of competition in the Los Angeles
metropolitan area are a small number of branches of major banks which maintain a
limited bilingual staff for Korean-speaking customers. While such banks have not
traditionally focused their marketing efforts on the Bank's customer base in
Southern California, their competitive influence could increase should they in
the future choose to focus on this market.

         In Northern California, there are currently one local Korean-American
bank, two branches of a Los Angeles-based Korean-American bank and one LPO of a
local Korean-American bank as well as branch offices of major or regional
commercial banks.

           In Seattle, there is one local Korean-American bank serving the
banking needs of the local Korean-American community. In addition to the Bank,
currently three other Los Angeles-based Korean-American banks operate LPO's in
the Seattle area.

         In addition to competition from banks in its niche market, the Bank
competes with large commercial banks which have, among other advantages, the
ability to finance wide-ranging and effective advertising campaigns and to
allocate their investment resources to areas of highest yield and demand. Many
of the major banks operating in the Bank's market area offer certain services
which the Bank does not offer directly (but some of which the Bank offers
through correspondent institutions). By virtue of their greater total
capitalization, such banks also have substantially higher lending limits
(restricted to a percentage of the Bank's total stockholders' equity, depending
upon the nature of the loan transaction) than the Bank.

         Competitors also include savings institutions, credit unions, and
numerous non-banking institutions, such as finance companies, leasing companies,
insurance companies, brokerage firms, and investment banking firms. In recent
years, increased competition has also developed from specialized finance and
non-finance companies that offer money market and mutual funds, wholesale
finance, credit card, and other consumer finance services, including on-line
banking services and personal finance software. Strong competition for deposit
and loan products affects the rates of those products as well as the terms on
which they are offered to customers.

         To an extent the Bank is affected by more general competitive trends in
the industry, those trends are towards increased consolidation and competition.
Strong, unregulated competitors have entered banking markets with focused
products targeted at highly profitable customer segments. Many largely
unregulated competitors are able to compete across geographic boundaries and
provide customers increasing access to meaningful alternatives to banking
services in



nearly all significant products. Mergers between financial institutions have
placed additional pressure on banks within the industry to streamline their
operations, reduce expenses, and increase revenues to remain competitive.
Competition has also intensified due to federal and state interstate banking
laws, which permit banking organizations to expand geographically, and the
California market has been particularly attractive to out-of-state institutions.
The recently enacted Financial Modernization Act effective March 11, 2000, which
has made it possible for full affiliations to occur between banks and securities
firms, insurance companies, and other financial companies, is also expected to
intensify competitive conditions. See "Regulation and Supervision-- Financial
Modernization Act" below.

         Technological innovations have also resulted in increased competition
in the financial services industry. Such innovations have, for example, made it
possible for non-depository institutions to offer customers automated transfer
payment services that previously have been considered traditional banking
products. In addition, many customers now expect a choice of several delivery
systems and channels, including telephone, mail, home computer, ATMs,
self-service branches and/or in-store branches. In addition to other banks, the
sources of competition for such hi-tech products include savings associations,
credit unions, brokerage firms, money market and other mutual funds, asset
management groups, finance and insurance companies, and mortgage banking firms.
To some extent the effect of such competition on the Bank is limited by the lack
of availability of various technological advancements with Korean language
capability. However, as such technology becomes available, the competitive
pressure on the Bank to be at the forefront of such advancements is significant.

                                   EMPLOYEES

         As of December 31, 2002, the Bank had a total of 250 full time
employees and 15 part-time employees. Three of these individuals are seconded
KEB employees who are expected to return to KEB after their service at the Bank,
and were appointed to their current positions in accordance with KEB's
management rotation system. In addition, the CEO is a former KEB employee who
was appointed to the Bank upon his retirement from KEB. KEB intends to continue
to have significant involvement in the selection of individuals to fill certain
of the Bank's management positions. See "Risk Factors-Management Rotation."

                           REGULATION AND SUPERVISION

         GENERAL. The following discussion of statutes and regulations affecting
banks is only a summary and does not purport to be complete. This discussion is
qualified in its entirety by reference to such statutes and regulations. No
assurance can be given that such statutes or regulations will not change in the
future.

         As a California state-chartered bank whose accounts are insured by the
FDIC up to a maximum of $100,000 per depositor, the Bank is subject to
regulation, supervision and regular examination by the Department of Financial
Institutions (the "DFI") and the FDIC. In addition, while the Bank is not a
member of the Federal Reserve System, it is subject to certain regulations of
the Board of Governors of the Federal Reserve (the "FRB"). The regulations of
these agencies govern most aspects of the Bank's business, including the making
of periodic reports by the Bank, and the Bank's activities relating to
dividends, investments, loans, borrowings, capital requirements, certain
check-clearing activities, branching, mergers and acquisitions, reserves against
deposits and numerous other areas. Supervision, legal action and examination of
the Bank by the regulatory agencies are generally intended to protect depositors
and are not intended for the protection of stockholders.

         The earnings and growth of the Bank are largely dependent on its
ability to maintain a favorable differential or "spread" between the yield on
its interest-earning assets and the rate paid on its deposits and other
interest-bearing liabilities. As a result, the Bank's performance is influenced
by general economic conditions, both domestic and foreign, the monetary and
fiscal policies of the federal government, and the policies of the regulatory
agencies, particularly the FRB. The FRB implements national monetary policies
(such as seeking to curb inflation and combat recession) through its open-market
operations in the United States Government securities, by adjusting the required
level of reserves for financial institutions subject to its reserve requirements
and by varying the discount rate applicable to borrowings by banks which are
members of the Federal Reserve System. The actions of the FRB in these areas
influence the growth of bank loans, investments and deposits and also affect
interest rates charged on loans and deposits. The nature and impact of any
future changes in monetary policies cannot be predicted.



         CAPITAL ADEQUACY REQUIREMENTS. The Bank is subject to the regulations
of the FDIC governing capital adequacy. Those regulations incorporate both
risk-based and leverage capital requirements. Each of the federal regulators has
established risk-based and leverage capital guidelines for the banks or bank
holding companies it regulates, which set total capital requirements and define
capital in terms of "core capital elements," or Tier 1 capital; and
"supplemental capital elements," or Tier 2 capital. Tier 1 capital is generally
defined as the sum of the core capital elements less goodwill and certain other
deductions, notably the unrealized net gains or losses (after tax adjustments)
on available-for-sale investment securities carried at fair market value. The
following items are defined as core capital elements: (i) common stockholders'
equity; (ii) qualifying noncumulative perpetual preferred stock and related
surplus; and (iii) minority interests in the equity accounts of consolidated
subsidiaries. Supplementary capital elements include: (i) allowance for loan and
lease losses (but not more than 1.25% of an institution's risk-weighted assets);
(ii) perpetual preferred stock and related surplus not qualifying as core
capital; (iii) hybrid capital instruments, perpetual debt and mandatory
convertible debt instruments; and (iv) term subordinated debt and
intermediate-term preferred stock and related surplus. The maximum amount of
supplemental capital elements which qualifies as Tier 2 capital is limited to
100% of Tier 1 capital, net of goodwill.

         The Bank is required to maintain a minimum ratio of qualifying total
capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital
Ratio"), at least one-half of which must be in the form of Tier 1 capital ("Tier
1 Risk-Based Capital Ratio"). Risk-based capital ratios are calculated to
provide a measure of capital that reflects the degree of risk associated with a
banking organization's operations for both transactions reported on the balance
sheet as assets, and transactions, such as letters of credit and recourse
arrangements, which are recorded as off-balance sheet items. Under the
risk-based capital guidelines, the nominal dollar amounts of assets and
credit-equivalent amounts of off-balance sheet items are multiplied by one of
several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans. As of December 31, 2002 and
2001, the Bank's Total Risk-Based Capital Ratios were 15.95% and 16.07%,
respectively and its Tier 1 Risk-Based Capital Ratios were 14.70% and 14.82%,
respectively.

         The federal banking agencies have revised the risk-based capital
standards to take adequate account of concentrations of credit (i.e., relatively
large proportions of loans involving one borrower, industry, location,
collateral or loan type) and the risks of "non-traditional" activities (those
that have not customarily been part of the banking business). The regulations
require institutions with high or inordinate levels of risk to operate with
higher minimum capital standards, and authorize the regulators to review an
institution's management of such risks in assessing an institution's capital
adequacy.

         The federal banking agencies have also revised the risk-based capital
regulations to include exposure to interest rate risk as a factor that the
regulators will consider in evaluating a bank's capital adequacy. Interest rate
risk is the exposure of a bank's current and future earnings and equity capital
arising from adverse movements in interest rates. While interest risk is
inherent in a bank's role as financial intermediary, it introduces volatility to
bank earnings and to the economic value of the bank.

         Banks are also required to maintain a leverage capital ratio designed
to supplement the risk-based capital guidelines. Banks that have received the
highest rating of the five categories used by regulators to rate banks and are
not anticipating or experiencing any significant growth must maintain a ratio of
Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage
Capital Ratio") of at least 3%. All other institutions are required to maintain
a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a
minimum of 4% to 5%. Pursuant to federal regulations, banks must maintain
capital levels commensurate with the level of risk to which they are exposed,
including the volume and severity of problem loans, and federal regulators may,
however, set higher capital requirements when a bank's particular circumstances
warrant. As of December 31, 2002 and 2001, the Bank's Leverage Capital Ratios
were 11.56% and 10.77%, respectively.

PROMPT CORRECTIVE ACTION PROVISIONS

         Federal law requires each federal banking agency to take prompt
corrective action to resolve the problems of insured financial institutions,
including but not limited to those that fall below one or more prescribed
minimum capital ratios. The federal banking agencies have by regulation defined
the following five capital categories: "well capitalized" (Total Risk-Based
Capital Ratio of 10%; Tier 1 Risk-Based Capital Ratio of 6%; and Leverage Ratio
of 5%) and not subject to any regulatory order, agreement or directive;
"adequately capitalized" (Total Risk-Based Capital Ratio of 8%;



Tier 1 Risk-Based Capital Ratio of 4%; and Leverage Ratio of 4%) (or 3% if the
institution receives the highest rating from its primary regulator);
"undercapitalized" (Total Risk-Based Capital Ratio of less than 8%; Tier 1
Risk-Based Capital Ratio of less than 4%; or Leverage Ratio of less than 4%) (or
3% if the institution receives the highest rating from its primary regulator);
"significantly undercapitalized" (Total Risk-Based Capital Ratio of less than
6%; Tier 1 Risk-Based Capital Ratio of less than 3%; or Leverage Ratio less than
3%); and "critically undercapitalized" (tangible equity to total assets less
than 2%). A bank may be treated as though it were in the next lower capital
category if after notice and the opportunity for a hearing, the appropriate
federal agency finds an unsafe or unsound condition or practice so warrants, but
no bank may be treated as "critically undercapitalized" unless its actual
capital ratio warrants such treatment. Although the Bank meets the minimum total
risk-based, Tier I risk based and Tier 1 leverage ratios to be considered
well-capitalized, because it is currently subject to a consent order concerning
its BSA deficiencies, it is not currently considered to be well-capitalized.
(See Item 3. "Legal Proceedings")

         At each successively lower capital category, an insured bank is subject
to increased restrictions on its operations. For example, a bank is generally
prohibited from paying management fees to any controlling persons or from making
capital distributions if to do so would make the bank "undercapitalized." Asset
growth and branching restrictions apply to undercapitalized banks, which are
required to submit written capital restoration plans meeting specified
requirements (including a guarantee by the parent holding company, if any).
"Significantly undercapitalized" banks are subject to broad regulatory
authority, including among other things, capital directives, forced mergers,
restrictions on the rates of interest they may pay on deposits, restrictions on
asset growth and activities, and prohibitions on paying certain bonuses without
FDIC approval. Even more severe restrictions apply to critically
undercapitalized banks. Most importantly, except under limited circumstances,
not later than 90 days after an insured bank becomes critically
undercapitalized, the appropriate federal banking agency is required to appoint
a conservator or receiver for the bank.

         In addition to measures taken under the prompt corrective action
provisions, insured banks may be subject to potential actions by the federal
regulators for unsafe or unsound practices in conducting their businesses or for
violations of any law, rule, regulation or any condition imposed in writing by
the agency or any written agreement with the agency. Enforcement actions may
include the issuance of cease and desist orders, termination of insurance of
deposits (in the case of a bank), the imposition of civil money penalties, the
issuance of directives to increase capital, formal and informal agreements, or
removal and prohibition orders against "institution-affiliated" parties.

SAFETY AND SOUNDNESS STANDARDS

         The federal banking agencies have adopted final guidelines establishing
safety and soundness standards for all insured depository institutions. Those
guidelines relate to internal controls, information systems, internal audit
systems, loan underwriting and documentation, compensation and interest rate
exposure. In general, the standards are designed to assist the federal banking
agencies in identifying and addressing problems at insured depository
institutions before capital becomes impaired. If an institution fails to meet
these standards, the appropriate federal banking agency may require the
institution to submit a compliance plan and institute enforcement proceedings if
an acceptable compliance plan is not submitted.

PREMIUMS FOR DEPOSIT INSURANCE

         The FDIC has adopted final regulations implementing a risk-based
premium system, whereby insured depository institutions are required to pay
insurance premiums depending on their risk classification. Under this system,
institutions such as the Bank which are insured by the Bank Insurance Fund
("BIF"), are categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three supervisory
categories based on federal regulatory evaluations. The three supervisory
categories are: financially sound with only a few minor weaknesses (Group A),
demonstrates weaknesses that could result in significant deterioration (Group
B), and poses a substantial probability of loss (Group C). The capital ratios
used by the FDIC to define well capitalized, adequately capitalized and
undercapitalized are the same in the FDIC's prompt corrective action
regulations. The current BIF base assessment rates (expressed as cents per $100
of deposits) are summarized as follows:





                                                      Group A      Group B      Group C
                                                      -------      -------      -------
                                                                       
Well Capitalized...................................      0            3           10
Adequately Capitalized.............................      3           10           24
Undercapitalized...................................     17           24           27


         In addition, BIF member banks (such as the Bank) must pay an amount
which fluctuates but is currently 1.68 basis points, or cents per $100 of
insured deposits, towards the retirement of the Financing Corporation bonds
issued in the 1980's to assist in the recovery of the savings and loan industry.

COMMUNITY REINVESTMENT ACT

         The Bank is subject to certain requirements and reporting obligations
involving Community Reinvestment Act ("CRA") activities. The CRA generally
requires the federal banking agencies to evaluate the record of a financial
institution in meeting the credit needs of its local communities, including low
and moderate income neighborhoods. The CRA further requires the agencies to take
a financial institution's record of meeting its community credit needs into
account when evaluating applications for, among other things, domestic branches,
consummating mergers or acquisitions, or holding company formations. In
measuring a bank's compliance with its CRA obligations, the regulators now
utilize a performance-based evaluation system which bases CRA ratings on the
bank's actual lending service and investment performance, rather than on the
extent to which the institution conducts needs assessments, documents community
outreach activities or complies with other procedural requirements. In
connection with its assessment of CRA performance, the FDIC assigns a rating of
"outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." The Bank was last examined for CRA compliance in April 2001 and
received an "outstanding" CRA Assessment Rating.

OTHER CONSUMER PROTECTION LAWS AND REGULATIONS

         The bank regulatory agencies are increasingly focusing attention on
compliance with consumer protection laws and regulations. Examination and
enforcement has become intense, and banks have been advised to carefully monitor
compliance with various consumer protection laws and their implementing
regulations. The federal Interagency Task Force on Fair Lending issued a policy
statement on discrimination in home mortgage lending describing three methods
that federal agencies will use to prove discrimination: overt evidence of
discrimination, evidence of disparate treatment, and evidence of disparate
impact. In addition to CRA and fair lending requirements, the Bank is subject to
numerous other federal consumer protection statutes and regulations. Due to
heightened regulatory concern related to compliance with consumer protection
laws and regulations generally, the Bank may incur additional compliance costs
or be required to expend additional funds for investments in the local
communities it serves.

INTERSTATE BANKING AND BRANCHING

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") regulates the interstate activities of banks and
bank holding companies and establishes a framework for nationwide interstate
banking and branching. Since June 1, 1997, a bank in one state has generally
been permitted to merge with a bank in another state without the need for
explicit state law authorization. However, states were given the ability to
prohibit interstate mergers with banks in their own state by "opting-out"
(enacting state legislation applying equality to all out-of-state banks
prohibiting such mergers) prior to June 1, 1997.

         Since 1995, adequately capitalized and managed bank holding companies
have been permitted to acquire banks located in any state, subject to two
exceptions: first, any state may still prohibit bank holding companies from
acquiring a bank which is less than five years old; and second, no interstate
acquisition can be consummated by a bank holding company if the acquirer would
control more than 10% of the deposits held by insured depository institutions
nationwide or 30% percent or more of the deposits held by insured depository
institutions in any state in which the target bank has branches.

         A bank may establish and operate de novo branches in any state in which
the bank does not maintain a branch if that state has enacted legislation to
expressly permit all out-of-state banks to establish branches in that state.

         In 1995 California enacted legislation to implement important
provisions of the Interstate Banking Act discussed above and to repeal
California's previous interstate banking laws, which were largely preempted by
the Interstate Banking Act.



         The changes effected by Interstate Banking Act and California laws have
increased competition in the environment in which the Bank operates to the
extent that out-of-state financial institutions directly or indirectly enter the
Bank's market areas. It appears that the Interstate Banking Act has contributed
to the accelerated consolidation of the banking industry. While many large
out-of-state banks have already entered the California market as a result of
this legislation, it is not possible to predict the precise impact of this
legislation on the Bank and the competitive environment in which it operates.

FINANCIAL MODERNIZATION ACT

         Effective March 11, 2000, the Gramm-Leach-Bliley Act eliminated most
barriers to affiliations among banks and securities firms, insurance companies,
and other financial service providers, and enabled full affiliations to occur
between such entities. This new legislation permits bank holding companies to
become "financial holding companies" and thereby acquire securities firms and
insurance companies and engage in other activities that are financial in nature.
A bank holding company may become a financial holding company if each of its
subsidiary banks is well capitalized under the FDICIA prompt corrective action
provisions, is well managed, and has at least a satisfactory rating under the
CRA by filing a declaration that the bank holding company wishes to become a
financial holding company. No regulatory approval will be required for a
financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the FRB.

         The Gramm-Leach-Bliley Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Board has determined to be closely related
to banking. A national bank (and therefore, a state bank as well) may also
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development and real estate investment, through a
financial subsidiary of the bank, if the bank is well capitalized, well managed
and has at least a satisfactory CRA rating. Subsidiary banks of a financial
holding company or national banks with financial subsidiaries must continue to
be well capitalized and well managed in order to continue to engage in
activities that are financial in nature without regulatory actions or
restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a financial holding company or a bank
may not acquire a company that is engaged in activities that are financial in
nature unless each of the subsidiary banks of the financial holding company or
the bank has a CRA rating of satisfactory or better. The Gramm-Leach-Bliley Act
also imposes significant new requirements on financial institutions with respect
to the privacy of customer information, and modifies other existing laws,
including those relating to community reinvestment.

USA PATRIOT ACT OF 2001

         On October 26, 2001, President Bush signed the USA Patriot Act of 2001
(the "USA Patriot Act"). Enacted in response to the terrorist attacks in New
York, Pennsylvania and Washington, D.C. on September 11, 2001, the Patriot Act
is intended to strengthen U.S. law enforcement's and the intelligence
communities' ability to work cohesively to combat terrorism on a variety of
fronts. The potential impact of the USA Patriot Act on financial institutions of
all kinds is significant and wide ranging. The Act contains sweeping anti-money
laundering and financial transparency laws and requires various regulations
applicable to financial institutions, including:

                  i.       due diligence requirements for financial institutions
                           that administer, maintain, or manage private banks
                           accounts or correspondent accounts for non-U.S.
                           persons;

                  ii.      standards for verifying customer identification at
                           account opening; and

                  iii.     rules to promote cooperation among financial
                           institutions, regulators, and law enforcement
                           entities in identifying parties that may be involved
                           in terrorism or money laundering.

         During 2002, the Federal Crimes Enforcement Network (FinCEN), a bureau
of the Department of Treasury, issued regulations to implement various
provisions of the Patriot Act. The Bank implemented the requirements of the
Patriot Act during 2001 and 2002. Compliance with such requirements has
substantially in connection with strengthening



the Bank's BSA compliance procedures which it was otherwise required to do, and
as such did not involve any material additional expenditures to comply with the
USA Patriot Act specifically. The actions taken to enhance

         BSA compliance are described in detail in "Item 3 - Legal Proceedings"
and "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Noninterest Expense."

 SARBANES-OXLEY ACT OF 2002

         On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all
companies with equity or debt securities registered under the Exchange Act. In
particular, the Sarbanes-Oxley Act establishes:

                  i.       new requirements for audit committees, including
                           independence, expertise, and responsibilities;

                  ii.      additional responsibilities regarding financial
                           statements for the chief executive officer and chief
                           financial officer of the reporting company;

                  iii.     new standards for auditors and regulation of audits;

                  iv.      increased disclosure and reporting obligations for
                           the reporting company and their directors and
                           executive officers and;

                  v.       new and increased civil and criminal penalties for
                           violation of the securities laws.

         Although we anticipate that we will incur additional expense in
complying with the provisions of the Sarbanes-Oxley Act and the resulting
regulations, management does not expect that such compliance will have a
material impact on our results of operations or financial condition.

         The Sarbanes-Oxley Act generally prohibits loans by the Bank to its
executive officers and directors. However, the Act contains a specific exception
from such prohibitions for loans by the Bank to its executive officers and
directors in compliance with federal banking regulations restrictions on such
loans. The Bank's authority to extend credit to affiliates, is also governed by
federal law. Such loans are required to be made on terms substantially the same
as those offered to unaffiliated individuals and that do not involve more than
normal risk of repayment.

OTHER PENDING AND PROPOSED LEGISLATION

         Other legislative and regulatory initiatives which could affect the
Bank and the banking industry in general are pending, including an initiative
that would permit the payment of interest on business checking accounts, and
additional initiatives may be proposed or introduced, before the United States
Congress, the California legislature and other governmental bodies in the
future. Such proposals, if enacted, may further alter the structure, regulation
and competitive relationship among financial institutions, and may subject the
Bank to increased regulation, disclosure and reporting requirements. In
addition, the various banking regulatory agencies often adopt new rules and
regulations to implement and enforce existing legislation. It cannot be
predicted whether, or in what form, any such legislation or regulations may be
enacted or the extent to which the business of the Bank would be affected
thereby.

                                  RISK FACTORS

         You should carefully consider the following risk factors and all other
information contained in this annual report on Form 10-K. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently believe are
immaterial also may impair our business. If any of the events described in the
following risk factors occur, our business, results of operations and financial
condition could be materially adversely affected. In addition, the trading price
of our common stock could decline due to any of the events described in these
risks.



CONTROL OF THE BANK BY KEB

         KEB owns approximately 62.4% of the Bank's Common Stock. In addition,
while KEB may sell additional shares of its Common Stock in the future, KEB has
indicated that it does not intend to allow its ownership level in the Bank to
decrease below a majority of the Bank's issued and outstanding shares for the
foreseeable future, except under certain circumstances. Specifically, KEB has
indicated to the Bank that in the case of a merger or acquisition in which the
Bank issues stock as part of the purchase price, KEB may consider allowing its
ownership of the Bank to decrease to below 50%. However, there is no assurance
that KEB will agree to do so. As long as KEB maintains its majority interest,
KEB will continue to be able to elect a majority of the Bank's directors, and
effectively control the shareholder vote on any and all matters, including
determinations such as approval of mergers or other business combinations, sales
of assets, and any other matters submitted to shareholders. In addition, KEB's
policies or the bank regulatory authorities of South Korea may require the Bank
to consult with KEB prior to making certain business or budgeting decisions,
organizational changes, or revisions to certain policies. While in general KEB's
interests would tend to be consistent with those of the Bank's other
shareholders, there can be no assurance that this will always be the case.

         KEB's ability to prevent a change in control of the Bank could have an
adverse effect on the market price for the Bank's Common Stock by discouraging
bids that might result in a premium over the market price for the holders of the
Common Stock. The Bank's current Board of Directors consists of a majority of
outside directors (i.e., directors who are neither employees of the Bank nor
KEB); however, KEB's majority ownership would allow KEB to change the
composition of the Bank's Board of Directors so that the Bank would not have a
majority of outside directors.

POOR ECONOMIC CONDITIONS IN SOUTHERN CALIFORNIA MAY CAUSE THE BANK TO SUFFER
HIGHER DEFAULT RATES ON ITS LOANS

         A substantial majority of the Bank's assets and deposits are generated
in the greater Los Angeles area in Southern California. As a result, poor
economic conditions in the Los Angeles area may cause us to incur losses
associated with higher default rates and decreased collateral values in the loan
portfolio. The Los Angeles area has experienced a downturn in economic activity
in line with the slowdown in California during the past year. Economic activity
slowed significantly immediately following the September 11, 2001 terrorist
attacks. Unemployment levels have increased since mid 2001, especially in Los
Angeles County, which is our geographic center and the base of our deposit and
lending activity. In addition, it is likely that the negative effect on the
national economy as a result of the war against Iraq will be significant. In the
early 1990s, the entire state of California experienced an economic recession
that resulted in increases in the level of delinquencies and losses for many of
the state's financial institutions. Although, the Bank's level of nonperforming
assets in 2002 decreased from its level of non-performing assets in 2001, and
should the current conditions deteriorate, we expect that our level of problem
assets would increase accordingly. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Nonperforming
Assets."

DIVIDENDS

           Prior to the Bank's initial public offering, KEB, as the sole
shareholder of the Bank, had been paid cash dividends from time to time. The
Bank paid a $8 million cash dividend in 2000. However, the Bank's dividend
payment history with KEB is not indicative of cash dividends to be paid in the
future, and the Bank has not paid a cash dividend since the payment of a cash
dividend to KEB in 2000.

         The decision to pay cash dividends in the future is solely within the
discretion of the Bank's Board of Directors, subject to compliance with legal
and regulatory requirements as well as the receipt of any necessary regulatory
approvals. The Bank's ability to pay cash dividends in the future will depend on
the Bank's profitability, growth and capital needs. No assurance can be given
whether or in what amounts any dividends will be declared or whether any such
dividends, once declared, will continue to be paid in subsequent years.

MANAGEMENT ROTATION

         Prior to the Bank's initial public offering, KEB had traditionally
appointed certain members of the Bank's senior management team pursuant to a
rotation system whereby KEB assigned selected employees from KEB to work at the
Bank for a temporary period. Such employees returned to KEB after completion of
their assignment at the Bank. This practice has continued since the initial
public offering, although the Bank has reduced the total number of such
officers.



KEB's continued involvement in the selection of management could result in a
lesser degree of management continuity and knowledge of local market conditions
than would be the case for a locally-owned and operated institution, and could
therefore have an adverse impact on the Bank's operations. Both KEB and the Bank
intend to use their best efforts to promote the continuity and stability of Bank
management. However, no assurance can be given that the Bank will be successful
in retaining any specific existing members of senior management.

MANAGEMENT OF GEOGRAPHIC EXPANSION

         The Bank's current business strategy includes expanding its operations
geographically into select metropolitan areas with large Korean-American
populations through the acquisition or opening of new branches and LPO's. In
July 2001, the Bank opened its Silicon Valley office as a full service branch
office and closed its San Jose LPO, which was opened in July 2000 in San Jose,
Northern California. In May 2000 the Bank opened its first LPO, which is located
in the greater Seattle area. The Bank's recent and anticipated future growth
outside of its current market area could place extra demands on the Bank's
Management, personnel, systems, asset quality, earnings, policies and procedures
and present problems not faced when the Bank concentrated its branch network
within a relatively concentrated geographic area. There can be no assurance that
the Bank will be able to make all adjustments necessary to employ and retain
personnel with adequate training and experience to manage the anticipated
geographical expansion of the Bank which will necessitate, among other things,
developing knowledge and expertise in new markets and familiarity with the laws
and regulations of other states. The failure to manage such geographic expansion
effectively could have a material adverse effect on the Bank's business, cash
flows, financial condition and results of operations. See "Item 1. Business-
General".

LOAN CONCENTRATIONS

         Approximately $395.8 million or 57.9% of the Bank's loan portfolio at
December 31, 2002, and $312.0 million or 54.4% of the Bank's loan portfolio at
December 31, 2001 were concentrated in commercial real estate loans. Although
commercial loans generally provide for higher interest rates and shorter terms
than single family residential loans, such loans generally involve a higher
degree of risk, as the ability of borrowers to repay these loans is often
dependent upon the profitability of the borrowers' businesses. An increase in
the percentage of nonperforming assets in the Bank's commercial real estate,
commercial and industrial loan portfolio may have a material impact on the
Bank's financial condition and results of operations.

         The Bank's loan portfolio is also predominantly secured by real estate
in California. Conditions in the California real estate market can and
historically have strongly influenced the level of the Bank's nonperforming
loans and its results of operations. Real estate values are affected by, among
other things, changes in general or local economic conditions, changes in
governmental rules or policies, the availability of loans to potential
purchasers and acts of nature. In the early 1990's, the California economy
experienced an economic recession that resulted in increases in the level of
delinquencies and losses for the Bank as well as for many of the state's other
financial institutions. Another recession in California, particularly with
respect to real estate prices, or the occurrence of a natural disaster, could
have a material adverse effect on the Bank. See "Poor Economic Conditions May
Cause us to Incur Losses, " above.

         In addition, historically, California has experienced, on occasion,
significant natural disasters, including earthquakes, brush fires and, during
early 1998, flooding attributed to the weather phenomenon known as "El Nino."
The availability of insurance for losses from such catastrophes is limited. The
occurrence of one or more of such catastrophes could impair the value of the
collateral for the Bank's real estate secured loans and adversely affect the
Bank. Further, during 2002 real estate prices in Southern California, including
the Los Angeles area, rose precipitously. If real estate prices were to fall in
Southern California, the security for many of our real estate secured loans
could be reduced and we could incur significant losses if borrowers of real
estate secured loans default, and the value of our collateral is insufficient to
cover our losses.

ASSET QUALITY

         The Southern California economy and the real estate market in
particular suffered from the effects of a recession in the first half of the
1990's. Some of the effects of the recession were declines in property values
and decreased demand for goods and services. The recession also had an adverse
effect on the ability of certain borrowers to perform under the original terms
of their obligations to the Bank. The Bank was adversely affected by these
market conditions due to its lending focus on secured real estate loans,
government guaranteed loans and other commercial loans, both unsecured and



secured by real estate and other assets. Economic conditions in Southern
California have again deteriorated in 2002. This deterioration, if prolonged or
intensified, would likely have a material adverse effect on the cash flows of
borrowers and their ability to repay outstanding loans, the value of the Bank's
real estate and the demand for new loan originations and could negatively impact
the Bank's financial condition or results of operations. A significant source of
risk for the Bank arises from the possibility that losses will be sustained
because borrowers, guarantors and related parties may fail to perform in
accordance with the terms of their loan agreements. For last three years, the
Bank incurred no losses on its commercial real estate loan portfolio. The Bank
has adopted underwriting and credit monitoring procedures and credit policies
that Management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying the
Bank's loan portfolio. Such policies and procedures, however, may not prevent
unexpected losses that could materially adversely affect the Bank's financial
condition or results of operations.

LOAN LOSS ALLOWANCE MAY NOT COVER ACTUAL LOANS LOSSES

         The Bank maintains an allowance for loan losses at a level which it
believes is adequate to absorb any inherent losses in its loan portfolio.
However, changes in economic, operating and other conditions may cause its
actual loan losses to exceed its current allowance estimates. For the
foreseeable future, the Bank anticipates that the allowance for loan losses will
remain approximately at current levels. No assurance can be given that the
amounts of the required provisions for loan losses will in fact correspond to
such projections, that the actual loan growth will be consistent with
projections, or that the Bank may not sustain unexpected credit deterioration or
losses which would increase the required amount of the provisions, thereby
adversely affecting the Bank's earnings. See Item 7. "Management Discussion and
Analysis of Financial Condition and Results of Operation -- Provision for Loan
Losses" and "Nonperforming Assets -- Allowance for Loan Losses."

         In addition, the FDIC and the Department of Financial Institutions, as
an integral part of their respective supervisory functions, periodically review
the Bank's allowance for loan losses. Such regulatory agencies may require the
Bank to increase its provision for loan losses or to recognize further loan
charge-offs, based upon judgments different from those of management. Any
increase in the Bank's allowance required by the FDIC or the Department of
Financial Institutions could adversely affect the Bank.

IMPACT OF SOUTH KOREAN ECONOMIC CONDITIONS

         Because a significant portion of the Bank's customer base is
Korean-American, the Bank has historically had exposure to the economy of South
Korea (the "Korean Economy") with respect to certain of its loans and credit
transactions. Such exposure has consisted of (i) extensions of credit to banks
in South Korea in the form of letters of credit discount transactions ("Bills
Bought"); (ii) loans to borrowers in the U. S. secured by stand-by letters of
credit issued by banks in South Korea ("Korean L/C Loans"); and (iii) loans to
U. S. affiliates/subsidiaries of companies in South Korea ("Korean Affiliate
Loans").

         The current economic condition in South Korea is recovering from the
economic crisis in late 1990's. Management closely monitors the Bank's exposure
to the Korean Economy even though the Bank has not experienced any losses in
connection with this type of lending for at least the past five years. The Bank
also instituted new underwriting policies regarding Korean Affiliate Loans.
Under the new policies the Bank will not make any new Korean Affiliate Loans
unless the borrower meets all applicable underwriting criteria on a stand-alone
basis. Renewals of Korean Affiliate Loans of current borrowers and amounts will
be permitted on the basis of both credit factors and in consideration of
parent/guarantor capacity to perform.

         In addition to the three types of credit extensions described above,
the Bank has historically issued performance letters of credit on behalf of
certain large, internationally-known Korean companies in connection with such
companies' transactions in the U. S. The Bank has not experienced any losses
with respect to such letters of credit for at least the past six years, and all
of the customers for whom such letters of credit have been issued are
substantial depositors which have typically maintained balances in excess of the
amounts of such letters of credit. Notwithstanding the Bank's efforts to
minimize its exposure to downturns in the Korean economy with respect to the
above-described credit extensions, there can be no assurance that the Bank's
efforts will be successful, and another significant downturn in the Korean
Economy could result in significant credit losses for the Bank.



         In addition to credit risks, because the Bank's customer base is
largely Korean-American, the Bank's deposit base could significantly decrease as
a result of a deterioration of the Korean Economy. Management believes that this
may result because some of the Bank's customers may need funds for their local
businesses which may be impacted by the Korean Economy, or may temporarily
withdraw deposits in order to transfer funds and benefit from gains on foreign
exchange and interest rates and/or to help their relatives or parent companies
in South Korea during downturns in the Korean Economy. A significant decrease in
the Bank's deposits could also have a material adverse effect on the financial
condition and results of operations of the Bank.

SHARES AVAILABLE FOR FUTURE SALE

         The future sale of a substantial number of shares of Common Stock by
KEB, or the perception that such sales could occur, could have an adverse effect
on the market price of the Common Stock.

POTENTIAL STATE TAX LIABILITY

         The Bank pays California state franchise taxes on the taxable income
allocated from the combined taxable income of KEB's branches and affiliates in
the United States, including the Bank, using the apportionment factors of
California property, payroll and revenues over combined property, payroll and
revenue of KEB's branches and its affiliates in the United States under the
Water's Edge Unitary method, which applies if KEB owns more than a 50% interest
in the Bank. To the extent that the Bank's taxable income, as a percentage of
the combined taxable income, is more or less than the apportionment percentage,
the actual California franchise tax liability and expense of the Bank may be
higher or lower than if the Bank were not part of the combined KEB group. It is
possible that the Bank could have no taxable income in a particular year, but
that based on the taxable income of the other entities in the group, the Bank's
state tax liability could be substantial. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" - "Provision
for Income Taxes" and "Taxation."

COMPETITION

         The banking business in the Bank's current and intended future market
areas is highly competitive with respect to virtually all products and services.
While the California banking market in general is dominated by a relatively
small number of major banks with many offices operating over a wide geographic
area, the Bank's direct competitors in its Southern California niche market
currently consist primarily of seven locally owned and operated Korean-American
banks and one subsidiary of a South Korean bank which focus their businesses on
Korean-American consumers and businesses. There is a high level of competition
within this specific niche. While major banks have not historically focused
their marketing efforts on the Bank's Korean-American customer base in Southern
California, their competitive influence could increase in the future. Similar
competitive factors exist in the Bank's other existing and potential
geographical markets, except that more of the Bank's competition outside of
Southern California comes from major or regional banks. In addition to
competitive factors impacting its specific market niche, the Bank is affected by
more general competitive trends in the banking industry, including intra-state
and interstate consolidation, competition from non-bank sources and
technological innovations. Many of the Bank's competitors have advantages over
the Bank in conducting certain businesses and providing certain services, and
there can be no assurance that the Bank will be able to successfully compete in
its current markets or markets into which it expands. See Item 1. "Business -
Competition."

EARTHQUAKES AND OTHER NATURAL DISASTERS

         Southern California, San Francisco and the Silicon Valley, where most
of the Bank's properties, and most of the real and personal properties securing
the Bank's loans are located, are prone to earthquakes, flooding and other
natural disasters. In addition to possibly sustaining damage to its own
properties, if there is a major earthquake, flood or other natural disaster, the
Bank faces the risk that many of its borrowers may experience uninsured property
losses, or sustained job interruption and/or loss which may materially impair
their ability to meet the terms of their loan obligations. A major earthquake,
flood or other natural disaster in California could have a material adverse
effect on the Bank's business, financial condition, results of operations and
cash flows. The Bank does not require its secured loan customers to obtain
earthquake insurance on the real property securing such loans as such insurance
is often unavailable or prohibitively expensive. A significant portion of the
Bank's loan portfolio is secured by real property located in either Koreatown or
in the garment district of downtown Los Angeles, and a substantial portion of
the Bank's unsecured borrowers are located in the greater Los Angeles area. An
earthquake or other natural disaster affecting the greater Los Angeles area
could




adversely affect the businesses of such borrowers and the properties securing
the Bank's loans and result in a material adverse effect on the Bank's financial
condition and results of operations.

MONETARY POLICY AND ECONOMIC CONDITIONS

         The Bank's net income depends to a large extent on its ability to
maintain a favorable differential or "spread" between the rates earned on its
loans and other interest-earning assets and the rates paid on its deposits and
other interest-bearing liabilities. These rates are highly sensitive to many
factors that are beyond the Bank's control, including general economic
conditions and the policies of various governmental and regulatory agencies, in
particular the Board of Governors of the Federal Reserve System. In addition,
future adverse economic conditions or changes in regulatory policies or
procedures could make a higher provision for loan losses prudent and could cause
higher loan charge-offs, thus adversely affecting the Bank's net earnings. See
Item 1. "Business- Regulation and Supervision" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Market Risk/Interest Rate Risk Management."

GOVERNMENT REGULATION AND LEGISLATION

         The Bank is subject to extensive state and federal regulation,
supervision and legislation, and the laws that govern the Bank and its
operations are subject to change from time to time. These laws and regulations
increase the cost of doing business and have an adverse impact on the Bank's
ability to compete efficiently with other financial service providers that are
not similarly regulated. Changes in regulatory policies or procedures could
result in Management determining that a higher provision for loan losses was
necessary and could cause higher loan charge-offs, thus adversely affecting the
Bank's net earnings. There can be no assurance that future regulation or
legislation will not impose additional requirements and restrictions on the Bank
in a manner that will adversely affect its results of operations, cash flows,
financial condition and prospects. In addition, certain transactions involving
the Bank such as acquisitions or other investments by the Bank as well as any
transactions involving the Bank to which KEB is a party, such as the proposed
acquisition of the New York branch office of KEB will be subject to notification
and/or approval requirements pursuant to the South Korean banking laws and
regulations, as administered by the South Korean bank regulatory authorities in
the exercise of their jurisdiction over KEB. See Item 1. "Business -
Regulation and Supervision."

ITEM 2.  PROPERTIES

         Pacific Union Bank's principal office is located at 3530 Wilshire
Boulevard, #1800, Los Angeles, California. The office is leased pursuant to a
10-year term lease which expires on December 9, 2008 plus an option to renew for
a term of five years. The following table sets forth information about the
Bank's owned and leased properties:



        NAME                                      LOCATION                                  USE OF FACILITIES       OWNED/LEASED
        ----                                      --------                                  -----------------       ------------
                                                                                                           
Corporate Headquarters       3530 Wilshire Boulevard, #1800, Los Angeles, California         Main Office               Leased

Wilshire Office              3245 Wilshire Boulevard, Los Angeles, California                Branch Office             Leased

Olympic Office               3099 Olympic Boulevard, Los Angeles, California                 Branch Office(1)          Owned

San Francisco Office         1491 Webster Street, San Francisco, California                  Branch Office             Leased

Western Office               928 South Western Avenue, Los Angeles, California               Branch Office(2)          Leased

Garden Grove Office          9122 Garden Grove Boulevard, Garden Grove, California           Branch Office             Owned

Vermont Office               933 South Vermont Avenue, Los Angeles, California               Branch Office(3)          Owned

Downtown Office              401 East 11th Street, Suite 207, Los Angeles, California        Branch Office             Leased

Van Nuys Office              114427 Sherman Way, Van Nuys, California                        Branch Office             Leased

Torrance Office              21838 Hawthorne Boulevard, Torrance, California                 Branch Office             Leased

Rowland Heights Office       18399 East Colima Road, Rowland Heights, California             Branch Office             Leased

Cerritos Office              11900 South Street, #109, Cerritos, California                  Branch Office             Leased

Silicon Valley Office        3402 El Camino Real, Santa Clara, California                    Branch Office             Leased




- ----------------------
(1) International Department is located at this facility

(2) Consumer Loan Center is located at this facility

(3) SBA Department is located at this facility

ITEM 3.  LEGAL PROCEEDINGS

         From time to time, the Bank is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration
information furnished by counsel to the Bank as to the current status of these
claims or proceedings to which the Bank is a party, Management is of the opinion
that the ultimate aggregate liability represented thereby if any, will not have
a material adverse affect on the financial condition of the Bank.

         The Bank also is currently subject to a Consent Order issued by the
FDIC pursuant to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(b)(1) and which became effective on April 14, 2002. The FDIC issued
the Consent Order as provided by the Consent Agreement that the Bank entered
into with the FDIC. The Consent Order requires the Bank to take specific actions
necessary to correct certain Bank Secrecy Act compliance deficiencies including
inadequate training, internal controls and ineffective independent testing of
such controls. Even before the Consent Order became effective, the Bank began
taking proactive steps in 2001 to improve its BSA compliance. For example, in
late 2001, the Bank implemented an enterprise-wide risk management
infrastructure, which includes a comprehensive compliance program and training.
This step was taken with the assistance of a leading financial services
consulting firm, The Secura Group, whom the Bank retained in November 2001 to
advise and assist the Bank in its compliance efforts. In addition, the Bank
created a new senior executive position of Chief Risk Officer and hired the CRO
in May 2002 to enhance overall Risk Management processes. Finally, to improve
the overall efficiency and effectiveness of BSA monitoring, the Bank purchased a
new automated BSA tracking/monitoring system which was installed in 2002 and is
in the process of implementation. The Bank expects this system to be fully
functional shortly, which will satisfy one of the most critical requirements of
the Consent Order. The Board of Directors, Management, Officers, and employees
of the Bank are fully committed to complying with all of the terms of the
Consent Order. In this regard, the Bank has been working and will continue to
work closely with the Bank's federal and state regulators.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.



                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

                  MARKET INFORMATION

                  The Bank's common stock is traded on the Nasdaq National
Market under the symbol "PUBB." Previously, all of the capital stock of the Bank
was owned by KEB, which now owns approximately 62.4% of the Bank's outstanding
common stock. See "Item 1 -- Business" herein. Trading in the Common Stock of
the Bank has not been extensive and such trades cannot be characterized as
amounting to an active trading market. Management is aware of the following
securities dealers which make a market in the Bank's stock: Sandler O'Neill &
Partners, L.P., New York, New York; Hoefer & Arnett, San Francisco, California;
and Wedbush Morgan Securities, Inc., Los Angeles, California ("the Securities
Dealers").

                  The following table summarizes trades of the Bank's Common
Stock for the last two fiscal years setting forth the approximate high and low
sales prices of trading for the periods indicated, based upon information
provided by the Securities Dealers. The information in the following table does
not include trading activity between dealers.



                                                SALE PRICE OF
                                                 THE BANK'S           TRADING
                                                COMMON STOCK          VOLUME
            CALENDAR                            ------------          ------
          QUARTER ENDED                        HIGH        LOW        SHARES
          -------------                        ----        ---        ------
                                                            
March 31, 2001.......................          12.25       9.75        721,700

June 30, 2001........................          12.55       9.77        551,500

September 30, 2001...................          12.30       9.65        307,800

December 31, 2001....................          11.15      10.05        138,500

March 31, 2002.......................          11.49      10.12        295,600

June 30, 2002........................          17.59      10.27      1,226,300

September 30, 2002...................          18.20      11.01        758,300

December 31, 2002....................          13.21       9.28        782,800


                  HOLDERS

                  On March 10, 2003 there were approximately 643 beneficial
owners of the Common Stock.

                  DIVIDENDS

                  Shareholders are entitled to receive dividends only when and
if dividends are declared by the Bank's Board of Directors. Although the Bank is
legally able to pay cash dividends, it has been the Bank's practice, since its
initial public offering, to retain the Bank's earnings for the purpose of
increasing its capital to support growth. Accordingly, the Bank has paid no cash
dividends in the past two fiscal years. The Bank paid 12% and 10% stock
dividends in 2002 and 2001, respectively.

                  Under California law, the Bank may declare a cash dividend out
of the Bank's net profits up to the lesser of the Bank's retained earnings or
the Bank's net income for the last three (3) fiscal years (less any
distributions made to stockholders during such period), or, with the prior
written approval of the California Department of Financial Institutions, in an
amount not exceeding the greatest of (i) the retained earnings of the Bank, (ii)
the net income of the Bank for its last fiscal year, or (iii) the net income of
the Bank for its current fiscal year. The payment of any cash



dividends by the Bank will depend not only upon the Bank's earnings during a
specified period, but also on the Bank meeting certain capital requirements. See
"Item 1 -- Business-- Regulation and Supervision -- Capital Adequacy
Requirements" herein.

                  EQUITY COMPENSATION PLAN INFORMATION

                  The following table provides information as of December 31,
2002, with respect to options outstanding and available under the Bank's 2000
Stock Option Plan, which is the Bank's only equity compensation plan other than
employee benefit plans meeting the qualification requirements of Section 401(a)
of the Internal Revenue Code:



                                NUMBER OF SECURITIES TO BE        WEIGHTED-AVERAGE         NUMBER OF SECURITIES
                                  ISSUED UPON EXERCISE OF         EXERCISE PRICE OF      REMAINING AVAILABLE FOR
        PLAN CATEGORY               OUTSTANDING OPTIONS          OUTSTANDING OPTIONS         FUTURE ISSUANCE
                                                                                
  Equity compensation plans
approved by security holders             312,239                      $11.15                     223,764



ITEM 6.  SELECTED FINANCIAL DATA

         The selected financial data presented below is derived from the
Financial Statements of the Bank, which have been audited by
PricewaterhouseCoopers LLP and KPMG LLP, independent accountants. The selected
financial data should be read in conjunction with the audited Financial
Statements and notes thereto which appear elsewhere in this Annual Report, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below.

         The selected financial data as of December 31, 2002 and 2001 and for
each of the years in the three year period ended December 31, 2002 is derived
from our audited consolidated financial statements and related notes, which are
included in this Annual Report. The selected financial data for prior years is
derived from our audited consolidated financial statements which are not
included in this Annual Report. All per share information has been adjusted for
stock splits and dividends declared from time to time.





                                                                      AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                                                      ------------------------------------------
                                                         2002           2001           2000           1999            1998
                                                         ----           ----           ----           ----            ----
                                                                          (DOLLARS IN THOUSANDS)
                                                                                                    
SELECTED BALANCE SHEET DATA:
   Total assets ...................................   $   936,995    $   789,509    $   731,822    $   595,179     $   528,606
   Cash and due from banks ........................        24,266         26,074         32,326         40,524          27,891
   Federal funds sold .............................        62,500         42,000         61,600             --          60,000
   Federal Home Loan Bank stock ...................         3,538          1,504          1,414          2,000              --
   Securities available-for-sale ..................        64,701        139,662        150,097        143,626         115,273
   Securities held-to-maturity ....................        89,314             --          6,007         11,761          17,830
   Total loans ....................................       683,131        572,354        467,807        385,745         298,011
   Allowance for loan losses ......................         8,873          9,467          8,895          8,351           8,075
   Other real estate owned ........................            --             --            375             --              83
   Total deposits .................................       759,995        692,752        646,404        533,120         467,667
   Other borrowings ...............................            --             --             --             --              69
   Total stockholders' equity .....................       100,876         89,960         76,299         56,442          56,317
SELECTED STATEMENT OF OPERATIONS DATA:
   Interest income ................................        46,378         55,276         53,169         39,751          37,582
   Interest expense ...............................        13,311         22,204         20,126         13,616          13,071
   Net interest income before
     provision for loan losses.....................        33,067         33,073         33,043         26,135          24,511
   Provision for loan losses ......................         1,100          1,300          1,300            200           3,840
   Net interest income after
     provision for loan losses.....................        31,967         31,773         31,743         25,935          20,671
   Noninterest income .............................        12,645          9,907          9,335          8,224           8,012
   Noninterest expense ............................        25,557         23,396         22,083         20,282          20,763
   Income before income taxes .....................        19,055         18,283         18,995         13,877           7,920
   Income tax expense .............................         7,404          6,711          6,844          5,494           2,701
   Net income .....................................        11,651         11,572         12,151          8,383           5,219
   Comprehensive income(1) ........................        10,768         13,603         14,783          5,125           5,401
SHARE DATA:
   Net income per share - basic ...................   $      1.10    $      1.09    $      1.32    $      1.02     $      0.68
   Net income per share - diluted .................   $      1.09    $      1.08    $      1.32    $      1.02     $      0.68
   Book value per share ...........................          9.50           8.48           7.20           6.87            6.86
   Cash dividends .................................            --             --          8,000          5,000              --
   Weighted average common
     shares outstanding............................    10,616,017     10,600,306      9,180,807      8,213,334       7,709,845
   Year end shares outstanding ....................    10,621,554     10,606,417     10,597,254      8,213,334       8,213,334
KEY OPERATING RATIOS:
   PERFORMANCE RATIOS:
     Return on average equity(2) ..................         12.40%         13.99%         19.69%         15.05%           9.67%
     Return on average assets(3) ..................          1.34           1.41           1.84           1.50            1.04
     Interest rate spread(4) ......................          3.17           2.90           3.75           3.71            3.89
     Net interest margin(5) .......................          4.01           4.28           5.43           5.11            5.37
     Efficiency ratio(6) ..........................         55.91          54.44          52.11          59.03           63.84
     Net loans(7) to total deposits at year end ...         88.72          81.25          70.99          70.79           62.00
     Dividend payout ratio(8) .....................            --             --          65.84          59.64              --
     Average stockholders' equity to average
       total assets ...............................         10.84          10.08           9.33           9.98           10.73
   ASSET QUALITY RATIOS:
     Nonperforming loans to total loans(9) ........          0.30           0.88           0.13           1.03            3.15
     Nonperforming assets to total loans
       and other real estate owned(10) ............          0.30           0.88           0.21           1.03            3.17
     Net charge-offs to average total loans .......          0.28           0.14           0.17          (0.02)           1.27
     Allowance for loan losses to total
       loans at year end ..........................          1.30           1.65           1.90           2.16            2.71
     Allowance for loan losses to
       nonperforming loans ........................        437.96         187.09        1434.68         211.09           86.13
   CAPITAL RATIOS:
     Tier 1 capital to adjusted total assets ......         11.56          10.77          10.56          10.33           10.82
     Tier 1 capital to total risk-weighted
       assets .....................................         14.70          14.82          15.01          14.20           17.17
     Total capital to total risk-weighted
       assets .....................................         15.95          16.07          16.26          15.46           18.44


- --------------------------------

(1)  Comprehensive income consists of net income and net unrealized gains
     (losses) on securities available-for-sale.

(2)  Net income divided by average stockholders' equity.

(3)  Net income divided by average total assets.

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

(5)  Represents net interest income as a percentage of average interest-earning
     assets.

(6)  Represents noninterest expense as a percentage of the sum of net interest
     income before provision for loan losses and total noninterest income
     excluding securities gains and losses.

(7)  Represents total gross loans less the allowance for loan losses, deferred
     fees and related costs.

(8)  Represents dividends declared per share divided by net income per share.

(9)  Nonperforming loans consist of nonaccrual loans, loans past due 90 days or
     more and restructured loans.

(10) Nonperforming assets consist of nonperforming loans and other real estate
     owned.



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

         This discussion presents Management's analysis of the financial
condition and results of operations of the Bank as of and for each of the years
in the three-year period ended December 31, 2002 and includes the statistical
disclosures required by SEC Guide 3 ("Statistical Disclosure by Bank Holding
Companies"). The discussion should be read in conjunction with the Financial
Statements of the Bank and the notes related thereto which appear elsewhere in
this Form 10-K Annual Report (see Item 8 below). All share and per share
information set forth herein has been adjusted to reflect stock splits and
dividends declared.

         Statements contained in this report that are not purely historical are
forward looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 as amended, including the Bank's expectations, intentions,
beliefs, or strategies regarding the future. All forward looking statements
concerning economic conditions, rates of growth, rates of income or values as
may be included in this document are based on information available to the Bank
on the date noted, and the Bank assumes no obligation to update any such forward
looking statements. It is important to note that the Bank's actual results could
materially differ from those in such forward-looking statements.



Factors that could cause actual results to differ materially from those in such
forward looking statements are fluctuations in interest rates, inflation,
government regulations, economic conditions and competitive product and pricing
pressures in the geographic and business areas in which the Bank conducts its
operations.

CRITICAL ACCOUNTING POLICIES

         The Bank's financial statements are prepared in accordance with
accounting principles generally accepted in the U.S. The financial information
contained within these statements is, to a significant extent, based on
approximate measures of the financial effects of transactions and events that
have already occurred. Based on its consideration of accounting policies that
involve the most complex and subjective decisions and assessments, Management
has identified its most critical accounting policy to be that related to the
allowance for loan losses. The Bank'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 our historical loss experience,
delinquency and charge-off trends, collateral values, changes in nonperforming
loans, and other factors. Quantitative factors also incorporate known
information about individual loans, including borrowers' sensitivity to interest
rate movements and borrowers' sensitivity to quantifiable external factors
including commodity and finished good prices as well as acts of nature
(earthquakes, floods, fires, etc.) that occur in a particular period.

         Qualitative factors include the general economic environment in our
markets, including economic conditions in Southern California and in particular,
the state of certain industries. Size and complexity of individual credits in
relation to lending officers' background and experience levels, loan structure,
extent and nature of waivers of existing loan policies and pace of portfolio
growth are other qualitative factors that are considered in our methodologies.

         As the Bank adds new products, increases the complexity of its loan
portfolio, and expands its geographic coverage, it will enhance its
methodologies to keep pace with the size and complexity of the loan portfolio.
Management might report a materially different amount for the provision for loan
losses in the statement of operations to change the allowance for loan losses if
its assessment of the above factors were different. This discussion and analysis
should be read in conjunction with the Bank's financial statements and the
accompanying notes presented elsewhere herein, as well as the portion of this
Management's Discussion and Analysis section entitled "- Financial Condition -
Allowance for Loan Losses." Although Management believes the level of the
allowance as of December 31, 2002 is adequate to absorb losses inherent in the
loan portfolio, a decline in the regional economy may result in increasing
losses that cannot reasonably be predicted at this time.

         The Bank estimates its quarterly effective income tax rate based upon a
variety of factors including, but not limited to, the expected revenues and
resulting pretax income for the year, the composition and geographic mix of the
pretax income, the ratio of permanent differences of, and the realizability of
deferred tax assets. Any changes to the estimated rate are made prospectively in
accordance with the Accounting Principles Board of Opinion No.28, "Interim
Financial Reporting." Additionally, management makes estimates as to the amount
of the reserves, if any, that are necessary for known and potential tax
exposures.

         The Bank must make a determination of fair market value ("FMV") for
loans held for sale (lower of cost or market), collateral underlying loans, and
a variety of matters including our investment portfolio. These FMV's are
determined based on consistently applied methods which are accepted within the
regulatory environment the Bank operates. Investments are marked to market
according to similar or identical financial instruments available in the market
at the time of the mark. For all other items, market accepted techniques such as
valuations, discounted cash flow and BPO's are utilized.

GENERAL

         The Bank is a community-oriented bank focused on Korean-American niche
markets in California. The Bank has grown significantly over the past five years
by emphasizing personalized customer service for the Korean-speaking communities
which it serves. Total assets have increased by 77.3% over this five year
period. See "Item 6 - Selected Financial Data" herein.



         Over the past three years, the Bank has experienced significant balance
sheet growth. Total assets increased to $937.0 million at December 31, 2002 from
$789.5 million, and $731.8 million at December 31, 2001 and 2000, respectively,
for increases of 18.7% and 7.9% in 2002 and 2001, respectively. Total loans
increased to $683.1 million at December 31, 2002 from $572.4 million, and $467.8
at December 31, 2001 and 2000, respectively, for increases of 19.4% and 22.3% in
2001 and 2000, respectively. Total deposits increased to $760.0 million at
December 31, 2002 from $692.8 million, and $646.4 million at December 31, 2001
and 2000, respectively, for increases of 9.7% and 7.2% at December 31, 2001 and
2000, respectively. For the year ended December 31, 2002, the Bank realized net
income of $11.7 million or $1.10 per basic and $1.09 per diluted share compared
to net income of $11.6 million or $1.09 per basic and $1.08 per diluted share
for 2001 and $12.2 million or $1.32 per basic and diluted share for 2000. The
Bank's return on average equity was 12.40%, 13.99% and 19.69% for the years
ended December 31, 2002, 2001 and 2000, respectively. The Bank's return on
average assets for the same years was 1.34%, 1.41% and 1.84%, respectively.

NET INTEREST INCOME

         The Bank's earnings depend largely upon its net interest income, which
is the difference between the income received from its loan portfolio and other
interest-earning assets and the interest paid on deposits and other liabilities.
The net interest income, when expressed as a percentage of average total
interest-earning assets, is referred to as the net interest margin. The Bank's
net interest income is affected by the change in the level and the mix of
interest-earning assets and interest-bearing liabilities, referred to as volume
changes. The Bank's net interest income is also affected by changes in the
yields earned on assets and rates paid on liabilities, referred to as rate
changes. Interest rates charged on the Bank's loans are affected principally by
the demand for such loans, the supply of money available for lending purposes
and competitive factors. Those factors are, in turn, affected by general
economic conditions and other factors beyond the Bank's control, such as federal
economic policies, the general supply of money in the economy, legislative tax
policies, governmental budgetary matters and the actions of the FRB.

         Net interest income was $33.1 million, $33.1 million and $33.0 million
for the years ended December 31, 2002, 2001 and 2000, respectively. The weighted
average targeted Federal funds rate decrease in 2002 was the primary reason that
net interest income remained relatively unchanged for the year ended December
31, 2002 although total average net loans increased $71.3 million or 13.6%. The
Bank's average interest-earning assets were $823.8 million, $773.3 million and
$608.5 million in 2002, 2001 and 2000, respectively, representing increases of
6.5% and 27.1% in 2002 and 2001, respectively. The yield on interest-earning
assets was 5.6%, 7.1% and 8.6% for 2002, 2001 and 2000, respectively, and the
proportion of average net loans to average total interest-earning assets was
72.2% in 2002 compared to 67.7% in 2001 and 71.6% in 2000. The Bank's future
interest income will largely depend on its ability to originate a sufficient
volume of loans in its market areas. There is no assurance that the Bank will be
able to sustain satisfactory loan growth in 2003. The ratio of average
investment securities to average total interest-earning assets was 18.8% in
2002, compared to 21.2% and 24.8% in 2001 and 2000, respectively. The decrease
in the ratio of average investment securities to average total interest-earning
assets in 2002 was primarily due to sales of available-for-sale investment
securities.

         The proportion of low yielding Fed funds sold to total average
interest-earning assets decreased to 8.6% for 2002, compared to 10.8% for 2001,
but increased in 2001 from 3.1% in 2000. The weighted average yield on Fed funds
sold was 1.6%, 4.0% and 6.4% in 2002, 2001 and 2000, respectively. The yield on
Fed funds sold decreased by 240 basis points to 1.6% during 2002 due to a
decrease in the target weighted average Fed funds rate. The weighted average
target Fed funds rate was 1.67%, 3.68% and 6.26% during 2002, 2001 and 2000,
respectively.

         Interest income on loans decreased by $5.2 million or 12.2% in 2002
compared to 2001. Average net loans increased $71.3 million to $594.6 million in
2002 compared with $523.3 million in 2001. However, the interest income on loans
decreased due to the decrease in loan yield of 181 basis points to 6.15% in
2002, compared with 7.96% in 2001. Interest income on loans decreased by
$230,000 or 0.54% in 2001 compared to 2000. The decrease of $230,000 is net of a
decrease in interest income of $8.0 million resulting from the rate decrease of
163 basis points and an increase in interest income of $7.7 million resulting
from the average volume increase of $87.6 million.

         Total interest expense decreased by $8.9 million or 40.1% to $13.3
million in 2002, compared with $22.2 million in 2001. The decrease of $8.9
million in total interest expense in 2002 compared with 2001 resulted from a
$9.1 million decrease due to the rate change and offset by a $255,000 increase
due to the volume change of average interest-bearing liabilities. An interest
expense increase of $2.1 million or 10.3% in 2001, compared with $20.1 million
in 2000 resulted from a $5.9 million increase due to the volume change and was
offset by a $3.8 million decrease due to the rate change of



average interest-bearing liabilities. The majority of this increase was
attributable to the $3.2 million increase in certificates of deposit of $100,000
or more. The average balance on time certificates of deposit of $100,000 or more
decreased by $24.1 million or 8.8% to $249.2 million in 2002 which represents
44.8% of total deposits compared to $273.3 million in 2001.

         Total average interest-bearing liabilities were $555.8 million in 2002
compared to $533.0 million in 2001, representing an increase of 4.3%. The
average rate paid on interest-bearing liabilities were 2.4% and 4.2% in 2002 and
2001, respectively. The decrease of 180 bps in average rate paid on
interest-bearing liabilities in 2002 was primarily the result of the lower
interest rate environment and the decrease in the average balance of Jumbo CDs.
The interest expense on Jumbo CD's was $6.4 million in 2002 compared to $13.8
million in 2001 as a result of $24.1 million decrease in the average balance and
249 basis points decrease in the average interest rate.

NET INTEREST MARGIN

          The net interest margin for the years ended December 31, 2002, 2001
and 2000 was 4.01%, 4.28% and 5.43%, respectively. The decrease in the net
interest margin in 2002 is due to the fact that a substantial portion of the
interest earning assets reprice immediately after the rate change,
interest-bearing liabilities reprice slower than interest-earning assets, and
interest-bearing liabilities do not reprice to the same degree as interest
earning assets, given a stated change in the interest rate. The average yield on
interest earning assets decreased by 150 basis points due to the decreases in
the targeted Federal funds rate during 2002. This decrease was partially offset
by a decrease in the average rate paid on interest-bearing liabilities of 177
basis points mainly due to a decrease in the average deposit rate. The decrease
in the average yield on interest earning assets was primarily due to the
decrease in loan yields resulting from a decrease in the prime rate. The Bank's
loans are generally tied to an index of prime rate, plus a spread.

         The net interest margin was also affected by the relative change in the
mix of the Bank's interest-earning assets during 2002. The Bank's average net
loans (its highest yielding assets) increased as a percentage of earning assets
to 72.2% in 2002, compared 67.7% and 71.6% in 2001 and 2000, respectively. At
the same time, average Fed funds (its lowest yielding earning assets) decreased
to 8.6% of earning assets in 2002, compared to 10.8% in 2001, but increased
compared to 3.1% of earning assets in 2000. The average U. S. government agency
securities a relatively low-yielding asset decreased to 18.6% of earning assets
in 2002, compared 20.4%and 22.9% of earning assets in 2001 and 2000,
respectively.



         The following table shows the Bank's average balances of assets,
liabilities and stockholders' equity; the amount of interest income or interest
expense; the average yield or rate for each category of interest-earning assets
and interest-bearing liabilities; and the net interest spread and the net
interest margin for the years indicated:

              DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME



                                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                                        --------------------------------
                                                    2002                          2001                             2000
                                                    ----                          ----                             ----
                                                  INTEREST                       INTEREST                        INTEREST
                                        AVERAGE   INCOME/   AVERAGE    AVERAGE   INCOME/    AVERAGE    AVERAGE   INCOME/   AVERAGE
                                        BALANCE   EXPENSE  RATE/YIELD  BALANCE   EXPENSE   RATE/YIELD  BALANCE   EXPENSE  RATE/YIELD
                                        -------   -------  ----------  -------   --------  ----------  -------   -------  ----------
                                                                          (DOLLARS IN THOUSANDS)
                                                                                               
ASSETS:
Interest-earning assets:
Loans, net(1) ........................  $594,641  $ 37,107     6.15%   $523,337  $ 42,258      7.96%   $435,778  $ 42,487      9.59%
Federal Home Loan Bank stock .........     2,362       116     4.91       1,463        75      5.13       1,776       149      8.39
Taxable investment securities:
U. S. Treasury securities ............     1,247        74     5.93       5,486       304      5.54      11,412       624      5.47
U. S. Government agencies ............   153,233     7,912     5.16     157,946     9,199      5.82     139,482     8,625      6.18
Tax-exempt investment securities:(2)
State and political subdivisions .....       167         6     3.84         201         8      3.83         197         8      3.90
Federal funds sold ...................    70,753     1,144     1.59      83,454     3,382      4.00      18,931     1,217      6.43
Interest-earning deposits ............     1,409        19     1.35       1,371        50      3.65         954        59      6.18
                                        --------  --------             --------  --------              --------  --------
Total interest-earning assets ........   823,812    46,378     5.57     773,258    55,276      7.07     608,530    53,169      8.62
                                        --------  --------             --------  --------              --------  --------
Noninterest-earning assets:
Cash and due from banks ..............    25,402                         27,391                          31,659
Bank premises and equipment, net .....     7,777                          9,658                           9,518
Other real estate owned, net .........        --                             35                             122
Customers' acceptance liabilities ....     1,041                            742                             604
Accrued interest receivable ..........     3,403                          3,956                           3,972
Other assets .........................     5,333                          5,278                           6,887
                                        --------                       --------                        --------
Total noninterest-earning assets .....    42,956                         47,060                          52,762
                                        --------                       --------                        --------
Total assets .........................  $866,768                       $820,318                        $661,292
                                        ========                       ========                        ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
Money market .........................  $118,875     2,227     1.87    $102,151     2,744      2.69    $ 83,797     2,903      3.46
Super NOW ............................     7,517        39     0.52       6,141        59      0.96       5,682        89      1.57
Savings ..............................    42,505       289     0.68      42,833       564      1.32      41,515     1,038      2.50
Time certificates of deposit
 of $100,000 or  more ................   249,205     6,413     2.57     273,266    13,820      5.06     178,514    10,591      5.93
Other time ...........................   104,355     3,180     3.05     108,587     5,015      4.62      94,769     4,948      5.22
Other borrowings .....................    33,295     1,163     3.45          38         1      2.60       8,762       557      6.25
                                        --------  --------             --------  --------              --------  --------
Total interest-bearing ...............   555,752    13,311     2.40     533,016    22,203      4.17     413,039    20,126      4.87
                                        --------  --------             --------  --------              --------  --------
Noninterest-bearing liabilities:
Demand deposits ......................   210,778                        192,589                         177,727
Other liabilities ....................     6,316                         12,010                           8,819
                                        --------                       --------                        --------
Total noninterest-bearing ............   217,094                        204,599                         186,546
Stockholders' equity .................    93,922                         82,703                          61,707
                                        --------                       --------                        --------
Total liabilities and
Stockholders' equity .................  $866,768                       $820,318                        $661,292
                                        ========                       ========                        ========
Net interest income ..................            $ 33,067                       $ 33,073                        $ 33,043
                                                  ========                       ========                        ========
Net interest spread(3) ...............                         3.17%                           2.90%                           3.75%
                                                             ======                          ======                          ======
Net interest margin(4) ...............                         4.01%                           4.28%                           5.43%
                                                             ======                          ======                          ======
Ratio of average interest-bearing
Assets to average interest-bearing ...                       148.23%                         145.07%                         147.33%
                                                             ======                          ======                          ======


- --------------------------------
(1)  Loans are net of the allowance for loan losses, deferred fees and related
     direct costs. Non-accrual loans are included in the table for computation
     purposes, but the foregone interest of such loans is excluded. Loan fees
     were $615,000, $504,000 and $405,000 for the years ended December 31, 2002,
     2001 and 2000, respectively.

(2)  Yields on tax-exempt income have not been computed on a tax equivalent
     basis because tax-exempt securities are minimal.

(3)  Represents the average rate earned on interest-earning assets less the
     average rate paid on interest-bearing liabilities.

(4)  Represents net interest income as a percentage of average interest-earning
     assets.



         The following table sets forth, for the years 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 changes in
average daily balances (volume) or changes in interest rates (rate). The
variances attributable to both the volume and rate changes have been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amount of the changes in each:

                  RATE/VOLUME ANALYSIS OF NET INTEREST INCOME



                                                      YEAR ENDED                             YEAR ENDED
                                                      DECEMBER 31,                           DECEMBER 31,
                                                     2002 VS. 2001                          2001 VS. 2000
                                                     -------------                          -------------
                                                 INCREASES (DECREASES)                   INCREASES (DECREASES)
                                                   DUE TO CHANGE IN                        DUE TO CHANGE IN
                                                   ----------------                        ----------------
                                           VOLUME     RATE          TOTAL           VOLUME       RATE       TOTAL
                                           ------     ----          -----           ------       ----       -----
                                                                    (DOLLARS IN THOUSANDS)
                                                                                          
EARNING ASSETS:
INTEREST INCOME:                           $5,267    ($10,418)     ($5,151)         $ 7,746     ($7,975)    ($ 229)
   Loans, net(1)..................
   Federal Home Loan Bank stock...             44          (3)          41              (23)        (51)       (74)
   Taxable investment securities:
     U. S. Treasury securities....           (250)         20         (230)            (328)          8       (320)
     U. S. Government agencies....           (268)     (1,020)      (1,288)           1,096        (522)       574
   Tax-exempt securities:(2)
     State and political
       subdivisions...............             (1)          -           (1)               -           -          -
   Federal funds sold.............           (452)     (1,786)      (2,238)           2,765        (600)     2,165
   Interest-earning deposits......
                                                1         (32)         (31)              20         (29)        (9)
       Total net change                    ------    --------      -------          -------     -------     ------
           in interest income.....         $4,341    ($13,239)     ($8,898)         $11,276     ($9,169)    $2,107
                                           ------    --------      -------          -------     -------     ------

DEPOSITS AND BORROWED FUNDS:
INTEREST EXPENSE:
   Money market deposits..........            402        (919)        (517)             565        (724)      (159)
   Super NOW......................             11         (31)         (20)               7         (36)       (29)
   Savings deposits...............             (4)       (271)        (275)              32        (506)      (474)
   Time certificates of deposit in
     denominations of $100,000
      or more.....................         (1,126)     (6,281)      (7,407)           4,972      (1,743)     3,229
   Other time deposits............           (189)     (1,646)      (1,835)             675        (608)        67
   Other borrowings...............          1,161           1        1,162             (354)       (203)      (557)
                                           ------    --------      -------          -------     -------     ------
       Total net change
           in interest expense....            255      (9,147)      (8,892)           5,898      (3,821)     2,077
                                           ------    --------      -------          -------     -------     ------
Change in net interest income.....         $4,086    ($ 4,092)     ($    6)         $ 5,378     ($5,348)    $   30
                                           ======    ========      =======          =======     =======     ======


- ------------------

(1)  Loan fees net of direct cost have been included in the calculation of
     interest income. Loan fees were $615,000, $504,000 and $405,000 for the
     years ended December 31, 2002, 2001 and 2000, respectively. Loans are net
     of the allowance for loan losses, deferred fees and related direct costs.

(2)  Yields on tax-exempt income have not been computed on a tax equivalent
     basis, because the percentage of tax-exempt securities is minimal.

PROVISION FOR LOAN LOSSES

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

         The provision for loan losses was $1.1 million, $1.3 million and $1.3
million for the years ended December 31, 2002, 2001 and 2000, respectively. The
Bank had net charge-offs of $1.7 million (including $111,000 in recoveries) in
2002, $727,000 (including $581,000 in recoveries) in 2001, $756,000 in 2000
(including $432,000 in recoveries).


         The allowance for loan losses decreased to $8.9 million at December 31,
2002, from $9.5 million at December 31, 2001. The allowance for loan losses was
$8.9 million at December 31, 2000. The continual decline of allowance for loan
losses as a percentage of total gross loans is a reflection of the Bank's loan
portfolio growth in the commercial real estate relative to minimal charge-off
history on commercial real estate loan portfolio. Based on the current migration
methodology used to determine the adequacy of the allowance for loan losses, and
the historically low charge-off ratio relative to its portfolio size, the
reserve requirement ratio is substantially lower than for other segments of the
other loan portfolio, such as commercial and industrial loan portfolio, which
has a higher historical charge-off ratio. The other reserve was $100,000,
$679,000 and $1.1 million for the years ended December 31, 2002, 2001, and 2000.
The allowance for loan losses at December 31, 2002, as a percentage of total
loans was 1.3%, compared to 1.7% and 1.9% at December 31, 2001 and 2000,
respectively.

         The Bank formally assesses the allowance for loan losses on a quarterly
basis. The allowance for loan losses begins with Management reviewing each
individual classified, criticized loan in detail, evaluating, among other
things, the adequacy of collateral, payment record, current loan status and
borrower financial capacity. A loan loss allowance is assigned to each
classified and criticized loan. Loans categorized as Substandard, Doubtful and
Loss as well as Special Mention from this quarterly review are based upon the
specifics of the loans circumstances, including updated collateral value,
borrowers or guarantors financial capacity, payment record and recent
conversations with the borrower. Additionally, each quarter the Bank updates its
twelve-quarter loss migration analysis for commercial loan pool, six-quarter
loss migration analysis for homogeneous loan pool and four-quarter loss
migration analysis for credit card loan pool to drive rolling respective loan
loss experience percentages. These loan pools are assigned an appropriate
reserve factor based upon the Bank's historical charge off experience or a
minimum floor, whichever is greater, and then accounts for qualitative
adjustments that takes consideration of current conditions. The allowance is
maintained at a level the Bank considers adequate to cover the inherent risk of
loss associated with its loan portfolio under prevailing and anticipated
economic conditions.

         For the foreseeable future, the Bank anticipates that the allowance for
loan losses will remain approximately at current levels. No assurance can be
given that the amounts of the required provisions will in fact correspond to
such projections or that the Bank may not sustain unexpected credit
deterioration or losses which would increase the required amount of the
provisions. Management believes that the allowance for loan and lease losses at
December 31, 2002 is adequate to absorb the known and inherent risks in the loan
portfolio. However, no assurance can be given that changes in the current
economic environment in the Bank's principal market area or other circumstances
will not result in increased losses in the Bank's loan portfolio in the future.
The procedures for monitoring the adequacy of the allowance as well as detail
information concerning the allowance itself are included below under "Allowance
for Loan Losses."

NONINTEREST INCOME

         The Bank generates noninterest income from service fees on deposit
accounts and from other transactional and operating income in connection with
remittances, letters of credit, merchant service and other activities. The
following table sets forth the various components of the Bank's noninterest
income for the years indicated:



                                                           NONINTEREST INCOME

                                                             FOR THE YEARS
                                                           ENDED DECEMBER 31,
                                                     ------------------------------
                                                       2002       2001       2000
                                                     --------   --------   --------
                                                         (DOLLARS IN THOUSANDS)
                                                                  
Service charges on deposit accounts ..............   $  6,484   $  6,573   $  5,652
Remittance fees ..................................        912        918        996
Letter of credit related fees ....................        807        768        909
Net other real estate owned income ...............          -        114        357
Gain on sale of loans ............................        705          -          -
Gain on sale of securities .......................        825          -          -
Gain on sale of premise ..........................      1,194          -          -
Other operating income ...........................      1,718      1,534      1,421
                                                     --------   --------   --------
      Total ......................................   $ 12,645   $  9,907   $  9,335
                                                     ========   ========   ========
      As a percentage of average earning assets...       1.53%      1.28%      1.17%




         The Bank earns the majority of its noninterest income from service
charges on deposit accounts, which amounted to $6.5 million, $6.5 million and
$5.7 million in 2002, 2001 and 2000, respectively, or 51.3%, 66.3%, and 60.5% of
total noninterest income in 2002, 2001 and 2000, respectively. The slight
decrease in service charges on deposit accounts in 2002 mainly resulted from a
decrease in fees collected due to the non-sufficient funds. The increase in 2001
in service charges was a result of fee increases implemented on various bank
services in December 2000. Other operating income amounted to $1.7 million, $1.5
million and $1.4 million in 2002, 2001, and 2000, respectively. The increase in
gain on sale of premises and equipment of $1.2 million was due to a sale of San
Francisco branch premise. The Bank realized a $825,000 in gain on sale of
investment securities and a $705,000 in gain on sale of loans including a
$586,000 gain realized from the SBA loans in 2002. The Bank is planning to
continue to originate and sell SBA loans in 2003. Remittance fees amounted to
$912,000, $918,000 and $996,000 or 7.2%, 9.3% and 10.7% of total non-interest
income in 2002, 2001, and 2000, respectively. Fees from letters of credit
totaled $807,000, $768,000 and $909,000 or 6.4%, 7.8% and 9.7% of total
non-interest income in 2002, 2001 and 2000, respectively.

         Other operating income was composed of various fee income from routine
banking operations, such as credit card processing fees, merchant discount fees,
safety deposit box rental and check printing charges, none of which were
individually significant.

NONINTEREST EXPENSE

         The following table sets forth the breakdown of non-interest expense
for the years indicated:



                                                       NON-INTEREST EXPENSE

                                                          FOR THE YEARS
                                                        ENDED DECEMBER 31,
                                                  ------------------------------
                                                    2002       2001       2000
                                                  --------   --------   --------
                                                      (DOLLARS IN THOUSANDS)
                                                               
Salaries and employee benefits ................   $ 12,348   $ 11,946   $ 11,573
Security guards ...............................        938        868        783
Net occupancy expense .........................      2,873      2,903      2,894
Equipment expense .............................      1,384      1,247      1,078
Data processing expense .......................      1,942      1,713      1,267
Office supplies ...............................        483        553        561
Legal and professional expense ................      1,206        757        480
Advertising and public relations ..............        845        568        578
Communication related expense .................      1,035        948        926
Other operating expense .......................      2,503      1,894      1,943
                                                  --------   --------   --------
               Total ..........................   $ 25,557   $ 23,397   $ 22,083
                                                  ========   ========   ========


         Total noninterest expense was $25.6 million, $23.4 million and $22.1
million for the years ended December 31, 2002, 2001 and 2000, respectively. The
increase in 2002 was mainly attributable to an increase in other operating
expenses of $696,000, legal and professional expenses of $449,000 and salaries
and employee benefits of $402,000. The increase in 2001 was primarily due to an
increase in salaries and employee benefits of $373,000, an increase in data
processing expenses of $446,000, and an increase in legal and professional
expenses of $277,000.

         Salaries and employee benefit costs totaled $12.3 million, $11.9
million and $11.6 million or 48.3%, 51.1% and 52.4% of total noninterest
expenses in 2002, 2001 and 2000, respectively. The number of full-time
equivalent employees was 261, 252 and 248 as of December 31, 2002, 2001, and
2000, respectively. The salaries and employee benefit costs increased by
$267,000 or 2.9% in 2002 compared with 2001, and $786,000 or 9.1% in
2001 compared with 2000.

         Occupancy expense totaled $2.9 million, $2.9 million and $2.9 million
or 11.2%, 12.4% and 13.1% of total noninterest expenses in 2002, 2001 and 2000,
respectively. In the middle of 2002, the Bank sold its San Francisco premise and
relocated its San Francisco office and in 2000, the Bank relocated the Gardena
office to the city of Torrance and reduced the size of both the Rowland Heights
and Van Nuys branches in furtherance of its right-sizing strategy.



         Data processing expenses totaled $1.9 million, $1.7 million and $1.3
million or 7.6%, 7.3% and 5.7% of noninterest expenses in 2002, 2001 and 2000,
respectively.

         Legal and professional expenses totaled $1.2 million, $757,000 and
$480,000 or 4.7%, 3.2% and 2.2% of the noninterest expenses in 2002, 2001 and
2000 respectively. The increase of $449,000 or 59.3% in 2002 compared with 2001
was primarily attributable to an increase in consulting and legal expenses for
retaining an outside consultant for reviewing a bank-wide risk program. The
increase of $277,000 or 57.7% in 2001 compared with 2000 was primarily
attributable to an increase in legal expenses for retaining outside consultants
for reviewing the Bank's operations and in connection with loan collection
activities.

         Other operating expense was comprised of FDIC and state assessment on
deposits expenses, SBA referral fees, sundry losses and other various expenses.
Other operating expenses totaled $2.5 million, $1.9 million and $1.9 million or
9.8%, 8.1% and 8.8% of total noninterest expenses in 2002, 2001, and 2000,
respectively. An increase of $609,000 or 32.2% in 2002 was mainly attributable
to the increases in SBA loan referral fees and sundry loss of $144,000 and
$256,000, respectively. A slight decrease of $49,000 or 2.5% in 2001 was mainly
attributable to the net of increases in other loan related expenses, employee
related expenses and other expenses of $118,000, $86,000, and $41,000,
respectively and decrease in sundry loss of $303,000.

         The efficiency ratio, defined as the ratio of noninterest expense to
the sum of net interest income before provision for loan losses and noninterest
income, was 55.9%, 54.4% and 52.1% in 2002, 2001 and 2000, respectively. The
efficiency ratio went slightly up in 2002 due to increased noninterest expense
compared with 2001. Increased noninterest expense was primarily attributable to
an increase in expenses in monitoring, training and auditing for compliance with
BSA in spite of the Bank's consistent efforts to control expenses and increase
revenues through improved marketing strategies.

PROVISION FOR INCOME TAXES

         The Bank had income taxes of $7.4 million, $6.7 million and $6.8
million in 2002, 2001 and 2000, respectively, resulting in effective tax rates
of 38.9%, 36.7% and 36.0% for 2002, 2001 and 2000, respectively. The effective
tax rate fluctuations are strongly influenced by California state franchise
taxes net of Federal tax benefits under the Water's Edge Unitary method.

         Income tax expenses included $2.0 million, $611,000 and $295,500 for
California franchise taxes in 2002, 2001 and 2000, respectively. The significant
increase in California franchise taxes in 2002 and 2001 was mainly due to a
fluctuation in taxable income of the Bank's affiliates in the United States
under the Water's Edge Unitary method. The Bank accrues state franchise taxes
based on the tax sharing agreement between the Bank and KEB. This agreement
requires that each party pay its share of California franchise tax liability on
the taxable income allocated from estimated combined net taxable income of KEB's
branches and affiliates in the United States, including the Bank, using the
apportionment factor of California property, payroll and revenues over combined
property, payroll and revenue of KEB's branches and its affiliates in the United
States under the Water's Edge Unitary method. See " Taxation" below.

         Deferred tax assets were $4.7 million, $3.3 million and $3.9 million as
of December 31, 2002, 2001 and 2000, respectively. The major portion of the
Bank's temporary differences involve recognizing substantially more loan loss
provisions in its financial statements than it has been allowed to deduct for
taxes. For tax purposes, the Bank must use the specific charge-off method for
bad debt deduction, which claims deductions only to the extent that loans become
wholly or partially worthless.

MARKET RISK/INTEREST RATE RISK MANAGEMENT

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



         Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Bank to attempt to control risks associated with interest rate movements. In
general, Management's strategy is to match asset and liability balances within
maturity categories to limit the Bank's exposure to earnings variations and
variations in the value of assets and liabilities as interest rates change over
time. The Bank's asset and liability management strategy is formulated and
monitored by the Bank's Asset/Liability Management Committee, which is composed
of executive and manager level officers from various areas of the Bank including
lending, investment and deposit gathering, in accordance with policies approved
by the Board of Directors. The Asset/Liability Management Committee meets
regularly to review, among other things, the sensitivity of the Bank's assets
and liabilities to interest rate changes, the book and market values of assets
and liabilities, unrealized gains and losses and maturities of investments and
borrowings. The Asset/Liability Management Committee also approves and
establishes pricing and funding decisions with respect to overall asset and
liability composition, and reports regularly to the Board of Directors.

         One of the primary goals of the Bank's Asset/Liability Management
Committee is to manage the financial components of the Bank so as to optimize
net income under varying interest rate environments. The focus of this process
is the development, analysis, implementation and monitoring of earnings
enhancement strategies that provide stable earnings and capital levels during
periods of changing interest rates.

         Interest rate risk occurs when assets and liabilities re-price at
different times as interest rates change. Generally speaking, the rates of
interest that the Bank earns on its assets, and pays on its liabilities, are
established contractually for specified periods of time. Unfortunately, market
interest rates change over time and if a financial institution cannot quickly
adapt to interest rate changes, then as a result it may be exposed to lower
profit margins or even losses. For instance, if the Bank were to fund long-term
assets with short-term deposits, and interest rates were to rise over the term
of the assets, the short-term deposits would rise in cost, decreasing or perhaps
eliminating the prior amount of 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
FRB reduced the targeted Fed funds rate by 50 basis points in 2002 and 475 basis
points in 2001 in response to a perceived economic slowdown with many economists
speculating further reductions. Such reductions, if sustained, will result in a
decrease in net interest income.

         In the management of interest rate risk, the Bank utilizes 1) monthly
gap analysis, and 2) quarterly simulation modeling to determine the sensitivity
of net interest income and economic value sensitivity of the balance sheet.
These techniques are complementary and are used to provide a more accurate
measurement of interest rate risk.

         Gap analysis measures the repricing mismatches between assets and
liabilities. The interest rate sensitivity gap is determined by subtracting the
amount of liabilities from the amount of assets that reprice in a particular
time interval. A liability sensitivity results when more liabilities than assets
reprice or mature within a given period. Conversely, an asset sensitive position
results when more assets than liabilities reprice within a given period. At
December 31, 2002, the Bank maintained a one-year gap position of $86.5 million
or 9.2% of total assets because the Bank's assets tend to reprice more
frequently than its liabilities over a twelve months period. The Bank will
realize lower net interest income in a falling rate environment.

         The following table sets forth the interest rate sensitivity of the
Bank's interest-earning assets and interest-bearing liabilities as of December
31, 2002 using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms. Actual payment patterns may differ from contractual payment patterns.



                                                                INTEREST RATE SENSITIVITY ANALYSIS
                                                                        AT DECEMBER 31, 2002
                                                                AMOUNTS SUBJECT TO REPRICING WITHIN
                                                           ----------------------------------------------
                                            0-3 MONTHS     3-12 MONTHS       1-5 YEARS      AFTER 5 YEARS      TOTAL
                                           ------------    ------------     ------------    -------------   ------------
                                                                      (DOLLARS IN THOUSANDS)
                                                                                             
Interest-earning assets:
         Total loans(1) ................   $    513,999    $     16,128     $     56,942    $      95,397   $    682,466
         Federal Home Loan Bank stock ..          3,538               -                -                -          3,538
         Investment securities(2) ......         12,793          11,809          125,875            3,538        154,015
         Federal funds sold ............         62,500               -                -                -         62,500
         Interest-earning deposits .....            211               -                -                -            211
                                           ------------    ------------     ------------    -------------   ------------
                Total ..................        593,041          27,937          182,817           98,935        902,730
                                           ============    ============     ============    =============   ============
Interest-bearing liabilities:
         Money market ..................        126,272               -                -                -        126,272
         NOW ...........................          7,602               -                -                -          7,602
         Savings deposits ..............         44,215               -                -                -         44,215
         Time deposits of $100,000
                or more ................        154,243         102,597            1,812                -        258,652
         Other time deposits ...........         43,161          46,372           10,344                -         99,877
         Other borrowed funds ..........              -          10,000           60,000                -         70,000
                                           ------------    ------------     ------------    -------------   ------------
                Total ..................   $    375,493    $    158,969     $     72,156    $           -   $    606,618
                                           ============    ============     ============    =============   ============
Interest rate sensitivity gap ..........   $    217,548   ($    131,032)    $    110,661    $      98,935   $    296,112

Cumulative interest rate
         sensitivity gap ...............   $    217,548    $     86,516     $    197,177    $     296,112

Cumulative interest rate
         sensitivity gap ratio as a
         percentage of total assets ....          23.22%           9.23%           21.04%           31.60%


- --------------
(1)Excludes non-accrual loans and including deferred loan fees.

(2)Based on maturity dates and repricing frequencies.



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

         The following table sets forth as of December 31, 2002 the Bank's
estimated net interest income over a twelve months period and NPV based on the
indicated changes in market interest rates.



                         % Change
     Change          (in Net Interest   % Change in
(in Basis Points)         Income)           NPV
- -----------------    ----------------   -----------
                                  
      200                  11.56%          8.77%
      100                   5.38           4.32
        0
     -100                  -8.62          -3.49
     -125                 -10.73%         -4.37%


         As indicated above, the net interest income increases (decreases) as
market interest rates rise (fall). This is due to the fact that the Bank
maintained a positive gap and also a substantial portion of the interest earning
assets reprice immediately after the rate change, interest-bearing liabilities
reprice slower than interest-earning assets, and interest-bearing liabilities do
not reprice to the same degree as interest earning assets, given a stated change
in the interest rate.



The NPV increases (declines) as the interest income increases (decreases) since
the change in the discount rate has a greater impact on the change in the NPV
than does the change in the cash flows.

         Management believes that the assumptions used by it to evaluate the
vulnerability of the Bank's operations to changes in interest rates approximate
actual experience and considers them reasonable; however, the interest rate
sensitivity of the Bank's assets and liabilities and the estimated effects of
changes in interest rates on the Bank's net interest income and NPV could vary
substantially if different assumptions were used or actual experience differs
from the historical experience on which they are based.

         The Bank's historical strategies in protecting both net interest income
and economic value of equity investments from significant movements in interest
rates have involved restructuring its investment portfolio and using FHLB
advances. Bank policies also permit the purchase of rate caps and floors, and
engaging in interest rate swaps, although the Bank has not yet engaged in either
of these activities. At December 31, 2002, the Bank had no derivative
instruments outstanding.

LIQUIDITY AND CAPITAL RESOURCES

         LIQUIDITY. Liquidity is the Bank's ability to maintain sufficient cash
flow to meet deposit withdrawals and loan demands and to take advantage of
investment opportunities as they arise. The Bank's principal sources of
liquidity have been growth in deposits and proceeds from the maturity of
securities and prepayments from loans. To supplement its primary sources of
liquidity, the Bank maintains $49.0 million of borrowing capacity under a
collateralized line of credit with the FHLB of San Francisco. As of December 31,
2002, the Bank's available liquidity totaled $186.4 million, which was
approximately 24.5% of total deposits and 71.9% of total volatile liabilities.
It is the Bank's policy to maintain a minimum fund availability to total deposit
and borrowing ratio of 20% and a minimum fund availability to total volatile
liability ratio of 50%. The Bank considers any excessive cash holdings or
balances in due from banks, overnight Fed funds sold, uncollateralized
available-for-sale securities, readily marketable loans and readily available
FHLB advances as fund availability. The Bank follows the regulatory definition
of volatile liabilities, which is Jumbo CD's. The ratios of the average balance
of Jumbo CD's to average total deposits for the years ended December 31, 2002,
2001 and 2000 were 47.7%, 51.3% and 43.2%, respectively.

         The following is a schedule by years of future net minimum rental
commitments, primarily representing noncancelable operating leases and a
noncancelable sublease and borrowings from Federal Home Loan Bank as of December
31, 2002.



                                       NET MINIMUM     OTHER
                                         RENTALS     BORROWINGS
                                       -----------  ------------
                                              
Year ending December 31:
        2003                           $ 1,426,777  $ 10,000,000
        2004                             1,407,250    25,000,000
        2005                             1,415,920    25,000,000
        2006                             1,207,483    10,000,000
        2007                             1,186,515            --
        Later years                      1,066,956            --
                                       -----------  ------------
                                       $ 7,710,901  $ 70,000,000
                                       ===========  ============


         As part of its service to its small to medium sized business customers,
the Bank issues formal commitments and lines of credit. These commitments can be
either secured or unsecured. They may be in the form of revolving lines of
credit for seasonal working capital needs. These commitments may also take the
form of standby letters of credit and commercial letters of credit. Commercial
letters of credit facilitate import trade. Standby letters of credit are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party.



         The following table shows the commercial commitments of the Bank as of
December 31, 2002.



                                                                    COMMITMENTS EXPIRING WITHIN
                                                                       AT DECEMBER 31, 2002
                                                                           (IN THOUSANDS)

                                                                    AFTER ONE BUT
                                                      WITHIN ONE       WITHIN        AFTER FIVE
                                                         YEAR        FIVE YEARS        YEARS          TOTAL
                                                     ------------   -------------   ------------   ------------
                                                                      (DOLLARS IN THOUSANDS)
                                                                                       
Commercial commitments:
          Loans ..................................   $     80,888   $      11,540   $         27   $     92,455
          Standby letters of credit ..............         19,556              19              -         19,575
          Commercial Letters of credit ...........          5,404               -              -          5,404
                                                     ------------   -------------   ------------   ------------
                   Total commercial commitments      $    105,848   $      11,559   $         27   $    117,434
                                                     ============   =============   ============   ============


                  The following table shows the commitments to extend credit
whose contract amounts represent the amount of credit risk include the following
at December 31, 2002 and 2001:



                                                        2002                              2001
                                           -------------------------------   -------------------------------
                                             OUTSTANDING      GUARANTEED       OUTSTANDING      GUARANTEED
                                               AMOUNT           AMOUNT           AMOUNT           AMOUNT
                                           --------------   --------------   --------------   --------------
                                                                                  
Commitments to extend credit:
       Commercial loans                    $   92,454,510   $           --   $   33,810,704   $           --
       Home equity line of credit               4,325,374               --        4,409,023               --
       Credit card loans and others             6,623,348               --        6,851,421               --
Standby letters of credit                      19,575,312       19,575,312       12,096,276       12,096,276
Commercial letters of credit                    5,404,357               --        5,547,866               --


CAPITAL RESOURCES. Stockholders' equity at December 31, 2002 was $100.9 million,
compared to $90.0 million and $76.3 million at December 31, 2001 and 2000,
respectively. The increase of $10.9 million or 12.1% in 2002 compared with the
same period of last year mainly resulted from retained earnings and was
partially offset by the unrealized loss on securities classified as
available-for-sale. The increase of $13.7 million or 17.9% in 2001 compared to
December 31, 2000 resulted from retained earnings and unrealized gain on
securities classified as available-for-sale.

         The Bank is committed to maintaining capital at a level sufficient to
assure shareholders, customers and regulators that the Bank is financially
sound. The Bank 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. Based on the guidelines, the Bank's Tier I capital risk based capital
ratio, total risk based capital ratio and leverage ratio meet or exceed 6%, 10%,
and 5%, respectively. The Bank's Tier 1 and total risk based capital ratios at
December 31, 2002 were 14.70% and 15.95%, respectively, compared with 14.82% and
16.07%, respectively, at December 31, 2001 and 15.01% and 16.26%, respectively
at December 31, 2000. The Bank's leverage ratio was 11.56%, 10.77% and 10.56% at
December 31, 2002, 2001 and 2000, respectively.

TAXATION

         FEDERAL TAXATION: The Bank is subject to those rules of federal income
taxation generally applicable to corporations under the Internal Revenue Code.
The Bank files its federal income taxes independently from KEB.

         BAD DEBT DEDUCTION: The Bank must use the specific charge-off method
for bad debt deduction, which claims deductions only to the extent that loans
become wholly or partially worthless.

         STATE TAXATION: The Bank files a separate California franchise tax
return and pays California state franchise taxes on the taxable income allocated
from the combined taxable income of KEB's branches and affiliates in the United
States, including the Bank, using the apportionment factors of California
property, payroll and revenues over combined property, payroll and revenue of
KEB's branches and its affiliates in the United States under the Water's Edge
Unitary method.



         Within the United States KEB currently has branches in Seattle,
Chicago, New York City and Los Angeles. For purposes of the Water's Edge Unitary
method the taxable income from all these entities is combined. The percentage of
this combined income taxable to the Bank in California is the percentage derived
by taking the Bank's apportionment factors over the total apportionment factors.
To the extent that the Bank's taxable income, as a percentage of the combined
taxable income, is more or less than the apportionment percentage, the actual
California franchise tax liability and expense of the Bank would differ from the
amount determined if the Bank was not part of the combined group. For instance,
even if the Bank had no taxable income, a tax liability and expense could exist
to the extent that the other entities did have taxable income. It is possible
that the Bank could have no taxable income in a particular year, but that based
on the taxable income of the other entities in the group, the Bank's state tax
liability could be significant.

IMPACT OF INFLATION; SEASONALITY

         The impact of inflation on a financial institution differs
significantly from such impact on other companies. Banks, as financial
intermediaries, have assets and liabilities that tend to move in concert with
inflation both as to interest rates and value. This is especially true for the
Bank, with a high percentage of interest rate-sensitive assets and liabilities.
A bank can reduce the impact of inflation if it can manage its interest rate
sensitivity gap. The Bank attempts to structure its mix of financial instruments
and manage its interest rate sensitivity gap in order to minimize the potential
adverse effects of inflation or other market forces on its net interest income
and therefore its earnings and capital. See " Market Risk/ Interest Rate Risk
Management" above. The effect of inflation on premises and equipment as well as
noninterest expense has generally not been significant. The Bank's business is
generally not seasonal.

                               FINANCIAL CONDITION

SUMMARY

         The Bank's average total assets were $866.8 million, $820.3 million and
$661.3 million in 2002, 2001, and 2000, respectively. The increase of $46.5
million or 5.7% in 2002 compared to 2001 was primarily due to the increase in
average loan portfolio of $71.3 million offset by the decreases in Federal funds
sold and available for sale securities by $12.7 million and $5.1 million,
respectively. The increase of $159.0 million or 24.0% in 2001 was primarily due
to the increases in average loan portfolio, Federal funds sold and available for
sale securities by $87.6 million, $64.5 million and $18.1 million, respectively.

         Total nonperforming assets at December 31, 2002 were $2.0 million,
compared to $5.1 million and $995,000 at December 31, 2001 and 2000,
respectively. Total nonperforming assets were 0.22% of total assets at December
31, 2002 compared to 0.64% and 0.14% of total assets at December 31, 2001 and
2000, respectively. See " Nonperforming Assets."

         During this same three year period, the Bank's average deposits showed
a continual growth pattern. Average total deposits were $733.2 million, $725.6
million and $582.0 million in 2002, 2001 and 2000, respectively, representing an
increase of $7.7 million or 1.06% in 2002 and $143.6 million or 24.7% in 2001.

         At December 31, 2002 total assets were $937.0 million, compared to
$789.5 million at December 31, 2001. Gross loans were $683.1 million at December
31, 2002 compared to $572.4 million at December 31, 2001. Total deposits were
$760.0 million at December 31, 2002 compared to $692.8 million at December 31,
2001.

LOAN PORTFOLIO

         Total loans outstanding as of December 31, 2002 were $683.1 million,
compared to $572.4 million and $467.8 million at December 31, 2001 and 2000,
respectively. Total loans comprised 72.9% of total assets at December 31, 2002,
compared with 72.5% and 63.9% of total assets at December 31, 2001 and 2000,
respectively. Total gross loans increased by $110.8 million or 19.4% in 2002.
The net increase in total loans is attributable to a $84.5 million increase in
commercial real estate secured loans, a $6.7 million increase in installment
loans, a $14.8 million increase in commercial and industrial loans, a $21.2
million increase in other loans, which consists predominantly of SBA loans, and
offset by a $19.1 million decrease in residential real estate loans.



         The following table set forth the composition of the Bank's loan
portfolio as of the dates indicated:



                                                         LOAN PORTFOLIO COMPOSITION

                                                               AT DECEMBER 31,
                                                               ---------------
                                              2002                    2001                    2000
                                              ----                    ----                    ----
                                                  PERCENT                 PERCENT                 PERCENT
                                       AMOUNT     OF TOTAL     AMOUNT     OF TOTAL     AMOUNT     OF TOTAL
                                     ----------  ----------  ----------  ----------  ----------  ----------
                                                              (DOLLARS IN THOUSANDS)
                                                                               
Commercial and industrial(1) ......  $  125,363       18.35% $  110,514       19.31% $   90,827       19.42%
Term Federal funds sold ...........           -           -           -           -           -           -
Installment loans, net ............      21,225        3.11      14,521        2.54      17,398        3.72
Real estate loans:
      Commercial ..................     395,807       57.94     311,326       54.39     250,477       53.54
      Home mortgage ...............      37,459        5.48      56,558        9.88      56,623       12.10
Home equity .......................       5,993        0.88       4,697        0.82       4,724        1.01
Other(2) ..........................      78,179       11.44      57,349       10.02      37,124        7.94
Trade Finance .....................      12,488        1.83       7,990        1.40       9,061        1.94
Bills Bought(3) ...................       6,617        0.97       9,399        1.64       1,573        0.33
                                     ----------  ----------  ----------  ----------  ----------  ----------
Total loans(4) ....................  $  683,131      100.00% $  572,354      100.00% $  467,807      100.00%
                                     ==========  ==========  ==========  ==========  ==========  ==========


                                                         LOAN PORTFOLIO COMPOSITION

                                                               AT DECEMBER 31,
                                                               ---------------

                                              1999                    1998
                                              ----                    ----
                                                  PERCENT                 PERCENT
                                       AMOUNT     OF TOTAL     AMOUNT     OF TOTAL
                                     ----------  ----------  ----------  ----------
                                                  (DOLLARS IN THOUSANDS)
                                                             
Commercial and industrial(1) ......  $   86,483       22.42% $   68,491       22.98%
Term Federal funds sold ...........           -           -      20,000        6.71
Installment loans, net ............       8,984        2.33      13,357        4.48
Real estate loans:
      Commercial ..................     178,740       46.34     129,824       43.57
      Home mortgage ...............      51,579       13.37      33,855       11.36
Home equity .......................       4,122        1.07       4,658        1.56
Other(2) ..........................      24,187        6.27      19,758        6.63
Trade Finance .....................       9,521        2.47       8,068        2.71
Bills Bought(3) ...................      22,129        5.73           -           -
                                     ----------  ----------  ----------  ----------
Total loans(4) ....................  $  385,745      100.00% $  298,011      100.00%
                                     ==========  ==========  ==========  ==========


- ---------------

(1) Includes Korean L/C Loans and Korean Affiliate Loans. See " Loans Involving
      Country Risk."

(2) Consists predominantly of SBA loans.

(3) See " Loans Involving Country Risk."

(4) Net of unearned income and participation loans sold.

LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE

                  The following table shows the maturity distribution and
repricing intervals of the Bank's outstanding loans as of December 31, 2002. In
addition, the table shows the distribution of such loans between those with
variable or floating interest rates and those with fixed or predetermined
interest rates. The table includes deferred loan fees of $1.3 million at
December 31, 2002.



                                                                        LOAN MATURITIES AND REPRICING SCHEDULE

                                                                              AFTER ONE BUT
                                                                WITHIN ONE        WITHIN        AFTER FIVE
                                                                   YEAR         FIVE YEARS        YEARS           TOTAL
                                                              --------------  --------------  --------------  --------------
                                                                               (DOLLARS IN THOUSANDS)
                                                                                                  
Commercial loans(1) ........................................  $      454,664  $       39,201  $       66,073  $      559,938
Installment loans ..........................................           5,595          15,629               -          21,224
Home equity ................................................             465               -           5,553           6,018
Other(2) ...................................................          75,462           2,653              64          78,179
Trade Finance ..............................................          12,488               -               -          12,488
Bills Bought(3) ............................................           6,617               -               -           6,617
                                                              --------------  --------------  --------------  --------------
                Total ......................................  $      555,291  $       57,483  $       71,690  $      684,464
                                                              ==============  ==============  ==============  ==============
Loans with variable (floating) interest rates ..............  $      544,805  $           27  $        5,553  $      550,385
Loans with predetermined (fixed) interest rates ............  $       10,486  $       57,456  $       66,137  $      134,079


- -------------
(1) Includes commercial and industrial loans and real estate loans

(2) Consists predominantly of SBA loans.

(3) See" Loans Involving Country Risk" below.

         COMMERCIAL LENDING-GENERAL. The Bank offers an array of commercial loan
products catering primarily to the needs of the Korean-American community.
Commercial loans offered by the Bank consist of three primary categories:
commercial real estate loans, commercial business loans, and international trade
finance. Commercial loans also include Korean L/C Loans and Korean Affiliate
Loans, which amounted to $17.4 million and $10.2 million, respectively, at
December 31, 2002. See "Loans Involving Country Risk" below.

         COMMERCIAL REAL ESTATE LOANS. The Bank offers mini-perm commercial real
estate loans secured by commercial, special use, or industrial buildings where
the loan's repayment source generally comes from tenants, or a



business, that fully or partially occupy the building. The majority of
properties that secures commercial real estate loans are located in Southern
California. After the recession in the California real estate market in the
early 1990's the Bank strengthened its loan underwriting policies for these
loans by adopting various policies, such as centralized appraisal review by a
loan review officer, and the requirement of an annual physical inspection and
valuation of the property.

         The Bank has established general underwriting guidelines for commercial
property real estate loans requiring a maximum loan-to-value ratio ("LTV") of
65% or the lesser of the appraised value or the purchase price. The Bank's
underwriting policies also require that the properties securing commercial real
estate loans have debt service coverage ratios of at least 1.25:1 for
investor-owned property. Additionally, for owner-occupied properties, the Bank
expects additional debt service capacity from the business itself. As additional
security, the Bank generally requires personal guaranties when the commercial
real estate loans are extended to corporations, limited partnerships, and other
legal entities.

         Commercial real estate loans are in all cases secured by first deeds of
trust, are generally for a term extending no more than seven years and are
amortized up to 20 to 25 years. The majority of the commercial real estate loans
currently being originated contain interest rates tied to the Wall Street
Journal prime rate that adjusts with changes in the federal discount rate. The
Bank also extends commercial real estate loans with fixed rates due to the high
demand for fixed rate loans.

         As of December 31, 2002, commercial real estate loans totaled $395.8
million, compared with $311.3 million at December 2001 and $250.5 million at
December 31, 2000. Total commercial real estate loans comprised 57.9% of total
gross loans, compared with 54.4% at December 31, 2001 and 53.5% at December 31,
2000. The increase of $84.5 million or 27.1% during 2002, $60.8 million or 24.3%
during 2001 and of $71.7 million or 40.1% during 2000 was primarily due to the
Bank's emphasis on increasing its local loan origination activities in
recognition of the continuing strength of the real estate market in Southern
California. During these periods, the Bank sought to increase its loans to local
customers through the active marketing of its loan products, more competitive
pricing policies based on loan quality and faster processing of loan
applications.

         COMMERCIAL BUSINESS LOANS. The Bank originates commercial business
loans to facilitate permanent working capital and to finance business
acquisitions, fixed asset purchases, accounts receivable and inventory
financing. These term loans to businesses generally have terms of up to five
years, interest rates tied to the Bank's prime rate and may be secured in whole
or part by owner-occupied real estate. As of December 31, 2002, the Bank had a
total of $125.4 million in commercial business loans representing 18.4% of total
gross loans, including $80.1 million in term loans and $42.3 million in
commercial lines of credit. This represents an increase of $14.8 million or
13.4% in 2002 compared to 2001 and $19.7 million or 21.7% in 2001 compared to
2000. These increases are attributable to increased loan origination for
business loans to finance business acquisitions and to facilitate permanent
working capital.

         Underwriting guidelines for commercial business loans include
evaluation of the borrower's quality of operations and management, specific use
of loan proceeds and proper identification of the repayment source. The loan
proceeds are advanced against security interests in blanket asset coverage, and
equipment loans are advanced against underlying specific equipment. When
appropriate, the Bank may require additional collateral with a lien on real
estate. Guaranties are generally required of borrowers other than individuals.

         In addition to term loans, the Bank offers commercial revolving lines
of credit to finance accounts receivable and inventory on a short term basis,
usually less than one year. This short term financing enables borrowers to
finance their cash needs during a business cycle and repay shortly thereafter.
In recognition of the rapidly changing small business credit market, the Bank
introduced a new unsecured, small business commercial loan product in 1999 that
streamlines the application process with a single simplified application. The
applicant is approved based on established approval criteria, such as length of
business experience, banking relationship and status of applicant's personal
credit history. The maximum loan amount allowed for this product is $70,000 per
borrower.

         TRADE FINANCE. For the purpose of financing overseas transactions, the
Bank provides short term trade financing to local borrowers in connection with
the issuance of letters of credit to overseas suppliers/sellers. As of December
31, 2002, such trade financing totaled $12.5 million and represented 1.8% of
total gross loans. Pursuant to such letters of credit, the Bank extends credit
to the borrower by providing assurance to the borrower's foreign suppliers that
payment will be made upon shipment of goods. Upon shipment of goods, and when
the letters of credit are negotiated by the



foreign suppliers, the borrower's inventory is financed by the Bank under the
approved line of credit facility. The typical term of trade finance is 90 days.
The underwriting procedure for this type of credit is the same as the procedure
for commercial business loans.

         CONSUMER LENDING-GENERAL. The Bank offers a wide range of consumer loan
products. The primary component of the Bank's consumer loans are residential
real estate loans, followed by automobile loans, home equity loans, cash secured
loans and credit cards. Other lesser amounts are comprised of reserve and
personal loans. All processing of residential real estate loans, automobile and
credit card loans are centralized at the Bank's Consumer Loan Center.

         RESIDENTIAL REAL ESTATE LOANS. The Bank offers residential real estate
loans, comprised of both variable and fixed rate, 1-4 unit single family
residence, first trust deed loans. As a portfolio lender, the Bank retains the
loans and the servicing rights on these loans. Substantially all residential
real estate loans involve properties located in the Bank's primary lending area.
As of December 31, 2002, residential real estate loans totaled $37.5 million and
represented 5.5% of total gross loans.

         The Bank extends residential real estate loans with an LTV of up to 80%
for loan amounts up to $650,000, and an LTV of up to 75% for loan amounts in
excess of $650,000 for owner occupied property. The maximum loan amount for this
type of loan is $1 million. For non-owner occupied properties, the Bank requires
an LTV of at least 70% for loan amounts up to $500,000. The Bank does not make
loans of more than $500,000 for non-owner occupied properties. A majority of the
residential real estate loans originated by the Bank are 5-year balloon, fixed
rate loans, amortizing up to 30 years. The Bank also originates a variety of ARM
loans with low initial interest rates fixed for the first six months and which
adjust semi-annually thereafter. All ARM loans are tied to the 11th District
Cost of Funds Index.

         Apart from portfolio residential real estate lending, the Bank
established loan brokering agreements with several major mortgage lenders in the
first quarter of 2002. The new program provides an opportunity for the Bank to
provide an additional variety of residential real estate loans offered by major
lenders while earning income from the transactions. As an agent of those major
lenders, the Bank is taking mortgage loan applications, collecting and
processing applicant and property information according to each lender's
specific program guidelines, and submitting such processed packages to a lender
for approval and funding. In connection with these loan brokering activities,
the Bank is responsible for ensuring that no fraud or material
misrepresentations are committed by the borrowers when obtaining the loans, and
is subject to a repurchase obligation if such fraud or material
misrepresentations occur. In order to reduce the risks associated with such
repurchase obligations, the Bank has strengthened its due diligence and
underwriting criteria for such brokered loans.

         HOME EQUITY LINES AND LOANS. The Bank offers home equity loans and
lines of credit secured by second deeds of trust on 1-4 unit single family
residences. At December 31, 2002, total outstanding balances for home equity
lines of credit totaled $5.6 million, representing 0.8% of total loans. As of
December 31, 2002, home equity loans totaled $465,000 and represented 0.1% of
total loans. The Bank also originates cash secured loans and automobile loans,
which totaled $5.2 million and $15.8 million, respectively; credit cards which
totaled $2.7 million; and others loans (personal and reserve loans) which
totaled $270,000, at December 31, 2002.

         INSTALLMENT LOANS. The Bank offers automobile loans up to 100% of
purchase price in case of new automobile or wholesale price listed on Kelly's
Blue Book in case of used automobile for loan amounts up to $50,000. The maximum
term Bank offers is up to 72 months. As of December 31, 2003, the outstanding
balance totaled $15.8 million. The Bank also originates cash secured loans,
which totaled $5.2 million at December 31, 2002.

         OTHER. Other loans at December 31, 2002 totaled $78.2 million or 11.4%
of total gross loans. Of this amount, $74.6 million or 95.4% were SBA loans and
the remainder were loans and loan participations in approximately ten programs
organized under the Community Reinvestment Act, credit cards and a very small
balance of reserve accounts (for overdraft protection). The SBA currently
guarantees from 75% to 80% of the principal and accrued interest of SBA loans.
Loans are provided to eligible applicants or small businesses to finance working
capital and the purchase of equipment or real estate. Depending on the use of
proceeds, the loan term may range from seven to twenty-five years. The Bank
attained its "PLP" (Preferred Lenders Program) with the SBA in 1999, which
status permits the Bank to approve SBA guaranteed loans directly. Since June
2001, the Bank purchased SBA guaranteed loans from the secondary market for
$33.8 million primarily to reduce its high liquidity position. The purchased
loans are 100% secured by the US Small Business Administration. Total SBA loans
outstanding as of December 31, 2002 were $74.6 million, compared to $53.4
million and $33.2 million at December 31, 2001 and 2000, respectively. The
increase of $21.2 million or 39.7%



during 2002 was primarily due to purchases of SBA guaranteed loans for $15.5
million. During 2002, $9.1 million of SBA loans were sold to the secondary
market.

         LOANS INVOLVING COUNTRY RISK. The Bank has historically made the
following three types of credit extensions involving exposure to the Korean
Economy: (i) extensions of credit to banks in South Korea in the form of Bills
Bought transactions ("Bills Bought"); (ii) loans to borrowers in the U. S.
secured by stand-by letters of credit issued by banks in South Korea ("Korean
L/C Loans"); and (iii) loans to U. S. affiliates/subsidiaries, whose parent
company is located in South Korea ("Korean Affiliate Loans"). As a policy of the
Bank, all loans involving exposure to the Korean Economy are monitored at
regular intervals and reported on to the Bank's Board of Directors.

         The following table sets forth the amounts of outstanding loans in the
above three categories as of the years indicated for South Korea, which is the
only country as to which the Bank's total outstandings exceeded one percent (1%)
of the Bank's total assets.



                                LOANS INVOLVING COUNTRY RISK
                                      AT DECEMBER 31,
                                      ---------------
CATEGORY                          2002      2001      2000
- --------                        --------  --------  --------
                                   (DOLLARS IN THOUSANDS)
                                           
Bills Bought .................  $  6,617  $  9,399  $  1,573

Korean L/C Loans(1) ..........    17,350     8,700    11,607

Korean Affiliate Loans(2) ....    10,179     9,775     4,430
                                --------  --------  --------
      Total                     $ 34,146  $ 27,874  $ 17,610


- ---------------

(1) In addition, the Bank had unfunded commitments for Korean L/C Loans in the
      amounts of $2.7 million, $3.2 million and $3.1 million as of December 31,
      2002, 2001 and 2000, respectively.

(2) In addition, the Bank had unfunded commitments for Korean Affiliate Loans in
      the amounts of $10.2 million, $5.4 million and $8.5 million as of December
      31, 2002, 2001 and 2000, respectively.

         Bills Bought represents negotiations of multiple short term acceptances
drawn under normal commercial letters of credit, and refinancing of sight
transactions under similar letters of credit. These transactions are exclusively
handled by the Bank's International Department. As of December 31, 2002, the
Bank had total outstanding Bills Bought of $6.6 million compared to $9.4 million
and $1.6 million outstanding at December 31, 2001 and 2000, respectively. The
Bank evaluates the banks in Korea involved in Bills Bought transactions
primarily according to publicly available long-term debt and deposit ratings as
provided by Moody's, Standard and Poors or other accepted international rating
agencies. The Bank has never experienced any losses with respect to such Bills
Bought.

         As of December 31, 2002, the Bank had $17.4 million in Korean L/C
Loans, compared to $8.7 million and $11.6 million at December 31, 2001 and 2000,
respectively. The Bank also had unfunded commitments for Korean L/C Loans of
$2.7 million as of December 31, 2002. These loans are short-term commercial and
industrial loans to U. S. borrowers whose business is located and operated in
California. The Bank plans to continue extending this type of credit in the
future in order to encourage its relationship banking with local customers who
are recent immigrants from South Korea and may not yet have adequate credit
histories in the U.S. to support more traditional loan products. Some of these
domestic borrowers may be subsidiaries of Korean corporations. The Bank
evaluates the banks in South Korea from which letters of credit are accepted
primarily according to the same procedure described above for Bills Bought
transactions.

         Korean Affiliate Loans totaled $10.2 million as of December 31, 2002,
compared to $9.8 million and $4.4 million at December 31, 2001 and 2000,
respectively. The Bank also had unfunded commitments for Korean Affiliate Loans
of $10.2 million as of December 31, 2002, compared to $5.4 million and $8.5
million at December 31, 2001 and 2000. The aggregate loans outstanding and
commitments at December 31, 2002, 2001 and 2000 were $20.3 million, $15.2
million and $12.9 million, respectively. Due to certain historical losses with
this type of loan, the Bank instituted a policy in 1999 of not making any new
Korean Affiliate Loans unless the borrower meets all applicable underwriting
criteria on a stand-alone basis. Renewals of Korean Affiliate Loans of current
borrowers and amounts will be permitted on the basis of both



credit factors and in consideration of parent/guarantor capacity to perform. As
of December 31, 2002, no Korean Affiliate Loans were considered nonperforming by
Management. See "-- Nonperforming Assets." All of the Korean Affiliate Loans
outstanding at December 31, 2002 represented loans or lines of credit which have
been renewed under the current underwriting policies.

         In addition to the three types of credit extensions listed above, the
Bank has historically issued performance letters of credit, which are considered
off-balance sheet items, on behalf of certain large, internationally-known
Korean companies in connection with such companies' transactions in the U. S.
Such performance letters of credit totaled $6.2 million, $5.1 million and $4.4
million as of December 31, 2002, 2001 and 2000, respectively. The Bank has never
experienced a demand for payment from the beneficiaries to such letters of
credit, and all of the customers for whom such letters of credit have been
issued are substantial depositors which have typically maintained balances in
excess of the amounts of such letters of credit.

NONPERFORMING ASSETS

         Nonperforming assets are comprised of loans on non-accrual status,
loans 90 days or more past due and still accruing interest, loans restructured
where the terms of repayment have been renegotiated resulting in a reduction or
deferral of interest or principal, 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. 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 Bank believes the borrower will eventually overcome those
circumstances and repay the loan in full. OREO consists of real property
acquired through foreclosure on the collateral underlying defaulted loans. OREO
acquired in settlement of loans is carried at fair value, less estimated costs
to sell. Any excess loan balance over the fair value, less selling costs at the
time of acquisition, is charged off to the allowance for loan losses.

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



                                                                           NONPERFORMING ASSETS
                                                                              AT DECEMBER 31,
                                                                              ---------------
                                                                2002      2001      2000      1999      1998
                                                              --------  --------  --------  --------  --------
                                                                        (DOLLARS IN THOUSANDS)
                                                                                       
NONACCRUAL LOANS:(1)
Commercial and industrial(2) ...............................  $  1,091  $  1,043  $    149  $  1,625  $  2,782
Installment loans, net .....................................        28         4         8        35        40
Real estate loans:
         Commercial ........................................         -     3,374         -     1,464     5,694
         Home mortgage .....................................       805       197         -       232       285
Home equity ................................................         -       130        68        95        20
Other(3) ...................................................        74       273       335        25        17
Trade Finance ..............................................         -         -         -         -         -
Bills Bought(4) ............................................         -         -         -         -         -
                                                              --------  --------  --------  --------  --------
               Total .......................................     1,998     5,021       560     3,476     8,838
LOANS 90 DAYS OR MORE PAST DUE AND STILL
         ACCRUING (AS TO PRINCIPAL OR INTEREST):
Commercial and Industrial(2) ...............................  $      -  $      -  $      -  $      -  $      -
Installment loans, net .....................................         -         -         -         -         -
Real estate loans:
         Commercial ........................................         -         -         -         -         -
         Home mortgage .....................................         -         -         -         -         -
Home equity ................................................         -         -         -         -         -
Other(3) ...................................................        28        39        42        23        49
Trade Finance ..............................................         -         -         -         -         -
Bills Bought(4) ............................................         -         -         -         -         -
                                                              --------  --------  --------  --------  --------
               Total .......................................        28        39        42        23        49
RESTRUCTURED LOANS:(5)
Commercial and industrial(2) ...............................  $      -  $      -  $      -  $      -  $     21
Installment loans, net .....................................         -         -         -         -         -
Real estate loans:
         Commercial ........................................         -         -         -       457       467
         Home mortgage .....................................         -         -         -         -         -
Home equity ................................................         -         -         -         -         -
Other(3) ...................................................         -         -        18         -         -
Trade Finance ..............................................         -         -         -         -         -
Bills Bought(4) ............................................         -         -         -         -         -
                                                              --------  --------  --------  --------  --------
              Total ........................................         -         -        18       457       488
                                                              --------  --------  --------  --------  --------
Total nonperforming loans ..................................     2,026     5,060       620     3,956     9,375
Other real estate owned ....................................         -         -       375         -        83
                                                              --------  --------  --------  --------  --------
              Total nonperforming assets ...................  $  2,026  $  5,060  $    995  $  3,956  $  9,458
                                                              ========  ========  ========  ========  ========
Nonperforming loans as a percentage
         of total gross loans ..............................      0.30%     0.88%     0.13%     1.03%     3.15%
Nonperforming assets as a percentage
         of total gross loans and other real estate owned ..      0.30%     0.88%     0.21%     1.03%     3.17%
Allowance for loan losses as a percentage
         of nonperforming loans ............................    437.96%   137.09%  1434.68%   211.09%    86.13%


- -----------------
(1) During the year ended December 31, 2002, additional interest income of
      approximately $41,000 would have been recorded if these loans had been
      paid in accordance with their original terms and had been outstanding
      throughout the applicable year then ended or, if not outstanding
      throughout the applicable year then ended, since origination.

(2) Includes Korean L/C Loans and Korean Affiliate Loans. See "-- Loans
      Involving Country Risk" above.

(3) Consists predominantly of SBA loans.

(4) See -- Loans Involving Country Risk" above.

(5) A "restructured loan" is one where the terms of which were renegotiated to
      provide a reduction or deferral of interest or principal because of a
      deterioration in the financial position of the borrower.




         The total nonperforming assets at December 31, 2002 was $2.0 million,
compared to $5.1 million and $995,000 at December 31, 2001 and 2000,
respectively. Total nonperforming assets were 0.22% of total assets at December
31, 2002 compared to 0.64% and 0.14% of total assets at December 31, 2001 and
2000, respectively. Total nonperforming loans decreased $3.1 million to a total
of $2.0 million at December 31, 2002 compared to an increase of $4.1 million
from the same period of 2000 to $5.1 million at December 31, 2001 compared with
total nonperforming loans of $995,000 at December 31, 2000. The decrease at
December 31, 2002 from the same period of 2001 was primarily attributable to an
elimination by note sale and a payoff of loans to related borrowers to whom the
Bank extended two commercial real estate secured loans totaling $3.0 million.
The Bank recognized a gain from the note sale.

         There is no outstanding OREO at December 31, 2002.

ALLOWANCE FOR LOAN LOSSES

         Credit risk is inherent in making loans. The Bank sets aside an
allowance for loan losses through charges to earnings. The charges are reflected
in the income statement as the provision for loan losses. Loans are promptly
charged against the allowance when, in Management's opinion, they are deemed
uncollectable, although the Bank continues to aggressively pursue collection
efforts.

         The Bank formally assesses the adequacy of the allowance on a quarterly
basis. The allowance is maintained at a level the Bank considers adequate to
cover the inherent risk of loss associated with its loan portfolio under
prevailing and anticipated economic conditions. In determining the adequacy of
the allowance for loan losses, Management takes into consideration growth trends
in the portfolio, examination by financial institution supervisory authorities,
prior loan loss experience by the Bank, concentrations of credit risk,
delinquency trends, general economic conditions, the interest rate environment
and internal and external credit reviews, including (i) detailed analysis of
individual loans for which full recovery may not be assured, (ii) loss migration
methodology results and (iii) peer group loan loss allowance data.

         This process involves judgmental discretion, and eventual losses may
therefore differ from even the most recent estimates. Due to these limitations,
the Bank assumes that there are losses inherent in the current loan portfolio
which will be sustained, but which have not yet been identified.

         Management believes that the allowance is adequate to absorb losses as
they arise. However, no assurance can be given that changes in the current
economic environment in the Bank's principal market area or other circumstances
will not result in increased losses in the Bank's loan portfolio in the future.



         The table below summarizes the activity in the Bank's allowance for
loan losses for the years indicated:



                                                                     ALLOWANCE FOR LOAN LOSSES
                                                                      YEARS ENDED DECEMBER 31,
                                                                      ------------------------
                                                           2002       2001       2000       1999        1998
                                                         --------   --------   --------   --------    --------
                                                                         (DOLLARS IN THOUSANDS)
                                                                                       
BALANCES:
         Average total loans outstanding during year ..  $603,654   $532,441   $444,287   $317,500    $295,788
                                                         ========   ========   ========   ========    ========
         Total gross loans outstanding
             at end of year ...........................  $683,131   $572,354   $467,807   $385,745    $298,011
                                                         ========   ========   ========   ========    ========
ALLOWANCE FOR LOAN LOSSES:
         Balances at beginning of year ................  $  9,467   $  8,895   $  8,351   $  8,075    $  7,980

         Charge-offs:
              Commercial and industrial(1) ............     1,479      1,094        567        962       2,911
              Installment loans, net ..................        18          -         33         17          80
              Real estate loans:
                  Commercial ..........................         -          -          -        457         623
                  Home mortgage .......................         -          -          -          -           -
              Home equity .............................         -          -          -          -         210
              Other(2) ................................       250        214         96        140         227
              Trade Finance ...........................        58          -        492          -          10
              Bills Bought(3) .........................         -          -          -          -           -
                                                         --------   --------   --------   --------    --------
                  Total charge-offs ...................     1,805      1,308      1,188      1,576       4,061

         Recoveries:
              Commercial and industrial(1) ............        70        525        282      1,098         199
              Installment loans, net ..................         -          9         14          3          42
              Real estate loans:
                  Commercial ..........................        10          -         73        304           7
                  Home mortgage .......................         -          -          0          -           -
              Home equity .............................         1          -         45        229          67
              Other(2) ................................        30         23         16         18           1
              Trade Finance ...........................         -         24          2          -           -
              Bills Bought(3) .........................         -          -          -          -           -
                                                         --------   --------   --------   --------    --------
                  Total recoveries ....................       111        581        432      1,652         316

         Net loan charge-offs (recoveries) ............     1,694        727        756        (76)      3,745
         Provision for loan losses ....................     1,100      1,300      1,300        200       3,840
                                                         --------   --------   --------   --------    --------
         Balance at end of year .......................  $  8,873   $  9,467   $  8,895   $  8,351    $  8,075
                                                         ========   ========   ========   ========    ========
RATIOS:
         Nonperforming loans to total loans ...........      0.30%      0.88%      0.13%      1.03%       3.15%
         Nonperforming assets to total loans
              and other real estate owned .............      0.30       0.88       0.21       1.03        3.17
         Allowance for loan losses to total
              loans at year end .......................      1.30       1.65       1.90       2.16        2.71
         Allowance for loan losses to total
              nonperforming loans .....................    437.96     187.09    1434.68     211.09       86.13
         Net loan Charge-offs to allowance
              for loan looses at end of year ..........     19.10       7.68      11.33      (0.91)      46.38

         Net loan Charge-offs to provision
              for loan looses .........................    154.05      55.96      58.15     (38.00)      97.52


- -----------------
(1) Includes Korean L/C Loans and Korean Affiliate Loans. See "Lending
      Activities -- Loans Involving Country Risk" above.

(2) Consists predominantly of SBA loans.

(3) See "Lending Activities -- Loans Involving Country Risk" above.

         Net loan charge-offs (recoveries) were $1.7 million, $727,000 and
$756,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
Gross charge-offs for these same periods were $1.8 million, $1.3 million and
$1.2 million, respectively. The increase in charge offs was mainly resulted from
the commercial business loan charge offs.



         For the year ended December 31, 2002, no amounts were charged off on
Loans Involving Country Risk, but the Bank charged off a total of $1.8 million,
including $1.5 million in commercial and industrial, $150,000 in credit card
debt, $58,000 in trade finance, $18,000 in installment, and $100,000 in others.
These charge-offs were offset by total recoveries in the amount of $111,000
during the same period. With recoveries, the allowance for loan losses at
December 31, 2002 decrease to $8.9 million, compared to $9.5 million, $8.9
million at December 31, 2001 and 2000 respectively. The allowance for loan
losses at December 31, 2002 as a percentage of total loans and as a percentage
of nonperforming loans was 1.3% and 438.0%, respectively, compared to 1.7% and
187.1% at December 31, 2001 and 1.9% and 1434.7% at December 31, 2000,
respectively. The increase in the allowance for loan losses as a percentage of
total nonperforming loans was primarily due to the decrease in total
nonperforming loans to $2.0 million in 2002 compared to $5.1 million in 2001.
The decrease in nonperforming loans in 2002 was primarily attributable to an
elimination by note sale and a payoff of loans to related borrowers to whom the
Bank extended two commercial real estate secured loans totaling $3.0 million.
The Bank recognized a gain from the note sale. The continual decline of
allowance for loan losses as a percentage of total gross loans is a reflection
of the Bank's loan portfolio growth in the commercial real estate relative to
minimal charge-off history on commercial real estate loan portfolio. Based on
the current migration methodology used to determine the adequacy of the
allowance for loan losses, and the historically low charge-off ratio relative to
its portfolio size, the reserve requirement ratio is substantially lower than
for other segments of the other loan portfolio, such as commercial and
industrial loan portfolio, which has a higher historical charge-off ratio.

         In view of the potential risks to the Bank presented by another
possible deterioration of the Korean Economy, the Bank has taken steps to
minimize and mitigate its credit exposure to the Korean Economy. The Bank
instituted new underwriting policies regarding Korean Affiliate Loans. Under the
new policies, the Bank, in general, does not make any new Korean Affiliate Loans
unless the borrower meets all applicable underwriting criteria on a stand-alone
basis. Renewals of Korean Affiliate Loans of current borrowers and amounts, will
be permitted on the basis of both credit factors and in consideration of
parent/guarantor capacity to perform. The Bank has experienced no losses on its
Korean L/C Loans for at least the past five years and Management does not intend
to reduce this segment of the loan portfolio. See "-- Loans Involving Country
Risk."

         The following table provides a breakdown of the allowance for loan
losses by category as of the dates indicated. The allocation presented should
not be interpreted as an indication that charges to the allowance for loan
losses will be incurred in these amounts or proportions, or that the portion of
the allowance allocated to each loan category represents the total amounts
available for charge-offs that may occur within these categories.



                                              ALLOCATION OF ALLOWANCE OF LOAN LOSSES
                                                         AT DECEMBER 31,
                                                         ---------------
                                          2002                    2001                   2000
                                          ----                    ----                   ----
                                             % OF LOANS               % OF LOANS             % OF LOANS
                                             IN CATEGORY             IN CATEGORY            IN CATEGORY
     BALANCE AT END OF YEAR                   TO TOTAL                 TO TOTAL               TO TOTAL
        APPLICABLE TO              AMOUNT       LOANS       AMOUNT      LOANS      AMOUNT      LOANS
        -------------             --------   -----------   --------  -----------  --------  -----------
                                                (DOLLARS IN THOUSANDS)
                                                                          
Commercial and industrial(1) ...  $  5,495       18.35%    $  5,753       19.31%  $  4,309       19.42%
Term Federal funds sold ........         -           -            -           -          -           -
Installment loans, net .........        30        3.11           51        2.54         38        3.72
Real estate loans:
       Commercial ..............     1,938       57.94        2,318       54.39      1,598       53.54
       Home mortgage ...........         0        5.48           71        9.88        143       12.10
Home equity ....................         2        0.88           64        0.82        223        1.01
Other(2) .......................       413       11.44          346       10.02        450        7.94
Trade Finance ..................       467        1.83          303        1.40        552        1.94
Bills Bought(3) ................        28        0.97           61        1.64          5        0.34
Unallocated(4) .................       500           _          500           -      1,577
                                  --------    --------     --------    --------   --------    --------
            Total ..............  $  8,873      100.00%    $  9,467      100.00%  $  8,895      100.00%
                                  ========    ========     ========    ========   ========    ========


                                              ALLOCATION OF ALLOWANCE OF LOAN LOSSES
                                                         AT DECEMBER 31,
                                                         ---------------
                                         1999                 1998
                                         ----                 ----
                                            % OF LOANS             % OF LOANS
                                            IN CATEGORY            IN CATEGORY
     BALANCE AT END OF YEAR                   TO TOTAL               TO TOTAL
        APPLICABLE TO              AMOUNT      LOANS      AMOUNT      LOANS
        -------------             --------  -----------  --------  -----------
                                            (DOLLARS IN THOUSANDS)
                                                       
Commercial and industrial(1) ...  $  3,288       22.42%  $  4,420       22.98%
Term Federal funds sold ........         -           -          -        6.71
Installment loans, net .........        64        2.33         68        4.48
Real estate loans:
       Commercial ..............     1,524       46.34      1,617       43.56
       Home mortgage ...........       135       13.37        142       11.36
Home equity ....................       394        1.07        443        1.56
Other(2) .......................       542        6.27        431        6.63
Trade Finance ..................       267        2.47         37        2.71
Bills Bought(3) ................        21        5.74          -           -
Unallocated(4) .................     2,116                    917
                                  --------    --------   --------    --------
            Total ..............  $  8,351      100.00%  $  8,075      100.00%
                                  ========    ========   ========    ========


(1) Includes Korean L/C Loans and Korean Affiliate Loans. See "Lending
      Activities -- Loans Involving Country Risk" above.

(2) Consists predominantly of SBA loans.

(3) See "Lending Activities -- Loans Involving Country Risk" above.

(4) As of December 31, 2002 and 2001, the unallocated solely consists of
      International Transfer Risk allocation for potential impact on Korean
      guarantors, as well as for Korean banks that support Korean L/C Loans.



INVESTMENT PORTFOLIO

         The investment securities portfolio is the Bank's second major interest
earning asset, the Bank classifies its investments into two portfolios: those
held-to-maturity and those available-for-sale. The Bank has no investments which
are classified as a trading portfolio.

         The Bank's securities portfolio is managed in accordance with a
comprehensive written Investment Policy which addresses strategies, types and
levels of allowable investments and which is reviewed from time to time, at
least on an annual basis, by the Board of Directors. The management of the
securities portfolio is set in accordance with strategies developed and overseen
by the Bank's Asset/Liability Management and Investment Committee.

         The Bank's Investment Policy authorizes the Bank to invest in Fed funds
sold (with limits as to how much may be sold to any one institution), repurchase
agreements (not to exceed a three month period and only to be engaged in with
correspondent banks, authorized broker/dealers and the Bank's customers),
certificates of deposit in other federally insured financial institutions (with
a maturity of five years or less and of no more than $100,000 per institution),
U. S. Treasury obligations (with a maturity up to fifteen years), U. S. Agency
obligations (with a maturity of up to ten years), U. S. Government agency
mortgage-backed securities (with average life of up to fifteen years and limited
to no more than 40% of the Bank's total securities portfolio), state and
municipal bonds (with limits as to size, quality and term), bankers acceptances
(limited to no more than 10% of the Bank's total securities portfolio),
Eurobonds (must be rated "A2" or better by Moody's at purchase, have a term not
exceeding 10 years and be limited to 20% of the Bank's total securities
portfolio) and commercial paper (with a maturity of up to three months and
limited to 10% of the Bank's total securities portfolio).

         At December 31, 2002, the Bank's investment portfolio amounted to
$154.0 million or 16.4% of total assets, compared to $139.7 million or 17.7% of
total assets at December 31, 2001 and $156.1 million or 21.3% of total assets at
December 31, 2000. The net increase of $14.3 million or 10.3% in 2002 resulted
from the purchase of securities of $129.1 million offset by matured securities
of $58.7 million and sales of securities of $29.3 million. The decrease of $16.4
million or 10.5% at December 31, 2001 compared to the same period of prior year
resulted from the $86.1 million of matured securities offset by $66.6 million of
purchased securities and the $3.1 million increase in fair market value of
available-for-sale securities during 2001. The net increase in the investment
portfolio was due to an implementation of the wholesale funding strategy and
sales of investment securities.

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



                                                                           INVESTMENT PORTFOLIO

                                                                              AT DECEMBER 31,
                                                                              ---------------
                                                          2002                     2001                     2000
                                                          ----                     ----                     ----
                                                AMORTIZED       FAIR      AMORTIZED       FAIR      AMORTIZED       FAIR
                                                   COST         VALUE        COST         VALUE        COST         VALUE
                                                   ----         -----        ----         -----        ----         -----
                                                                           (DOLLARS IN THOUSANDS)
                                                                                               
AVAILABLE-FOR-SALE:
   U. S. Treasury securities ................   $    1,003   $    1,074   $    1,504   $    1,573   $   11,506   $   11,516
   U. S. Government agencies ................       25,996       26,290       71,000       72,687       75,000       75,099
   Mortgage-backed securities(1) ............       34,000       34,730       61,090       61,592       59,556       58,752
   State and political
     subdivisions ...........................        2,507        2,607        3,699        3,810        4,735        4,730
                                                ----------   ----------   ----------   ----------   ----------   ----------
     Total available-for-sale ...............       63,506       64,701      137,293      139,662      150,797      150,097
HELD-TO-MATURITY:
   U. S. Government agencies ................            -            -            -            -        6,001        6,033
   Mortgage-backed securities(1) ............       89,314       90,799            -            -            6            6
                                                ----------   ----------   ----------   ----------   ----------   ----------
     Total held-to-maturity .................       89,314       90,799            -            -        6,007        6,039
                                                ----------   ----------   ----------   ----------   ----------   ----------
       Total investment securities ..........   $  152,820   $  155,500   $  137,293   $  139,662   $  156,804   $  156,136
                                                ==========   ==========   ==========   ==========   ==========   ==========


- --------------
(1)      Principal balances may be prepaid before contractual maturity date.

         The following table summarizes the maturity and repricing schedule of
the Bank's investment securities and their weighted average yield at December
31, 2002:

                  INVESTMENT MATURITIES AND REPRICING SCHEDULE



                                                                AFTER ONE BUT      AFTER FIVE BUT
                                            WITHIN ONE YEAR   WITHIN FIVE YEARS   WITHIN TEN YEARS
                                           -----------------  -----------------   ----------------
                                           AMOUNT   YIELD(1)  AMOUNT    YIELD(1)  AMOUNT  YIELD(1)
                                           ------   --------  ------    --------  ------  --------
                                                            (DOLLARS IN THOUSANDS)
                                                                        
AVAILABLE-FOR-SALE:
U. S. Treasury securities ...........            -       -    $  1,074    5.82%      -         -
Obligations of other U. S. Government
     agencies .......................        6,171    5.94%     20,119    4.16%      -         -
Mortgage-backed securities(2) .......       16,888    4.36%     14,304    5.93%      -      0.00%
Obligations of states and political
     subdivisions ...................        1,543    6.13%      1,064    6.17%      -         -
Total available-for-sale ............       24,602    5.77%     36,561    5.60%      -      0.00%
                                           -------  ------    --------  ------    ----    ------
HELD-TO-MATURITY:
Mortgage-backed securities(2) .......            -       -      89,314    4.37%      -         -
Total held-to-maturity ..............
                                                 -       -      89,314    4.37%      -         -
                                           -------  ------    --------  ------    ----    ------
Total investment securities .........      $24,602    5.77%   $125,875    5.15%      -      0.00%
                                           =======  ======    ========  ======    ====    ======

                                           AFTER TEN YEARS         TOTAL
                                           ----------------        -----
                                           AMOUNT  YIELD(1)   AMOUNT   YIELD(1)
                                           ------  --------  --------  --------
                                                 (DOLLARS IN THOUSANDS)
                                                           
AVAILABLE-FOR-SALE:
U. S. Treasury securities ...........           -       -    $  1,074    5.82%
Obligations of other U. S. Government
     agencies .......................           -       -      26,290    5.47%
Mortgage-backed securities(2) .......       3,538    7.04%     34,730    5.94%
Obligations of states and political
     subdivisions ...................           -       -       2,607    6.09%
Total available-for-sale ............       3,538    7.04%     64,701    5.77%
                                           ------  ------    --------  ------
HELD-TO-MATURITY:
Mortgage-backed securities(2) .......           -       -      89,314    4.37%
Total held-to-maturity ..............
                                                -       -      89,314    4.37%
                                           ------  ------    --------  ------
Total investment securities .........      $3,538    7.04%   $154,015    5.55%
                                           ======  ======    ========  ======


- ----------------
(1)      Yields on tax-exempt obligations have not been computed on a tax
         equivalent basis because the percentage of tax-exempt securities is
         minimal.

(2)      Principal balances may be prepaid before contractual maturity date.

NON-INTEREST EARNING ASSETS

         The largest portion of noninterest-earning assets as of December 31,
2002 consisted of cash and due from banks. Cash and due from banks consisted of
cash on hand, deposits with correspondent banks and deposits with the Federal
Reserve Bank of San Francisco which included required reserves. The outstanding
balance of cash and due from banks was $24.1 million, $26.0 million and $31.7
million as of December 31, 2002, 2001 and 2000, respectively. The ratio of
average cash and due from banks to the average total assets was 2.9%, 3.3% and
4.8% for the years ended December 31, 2002, 2001 and 2000, respectively. The
Bank maintained balances with correspondent banks to cover daily in-clearings
and other activity.


OTHER REAL ESTATE OWNED

         Other real estate owned acquired in settlement of loans is carried at
the lower of cost or fair value, less estimated cost to sell and any excess loan
balance over the fair value, less selling cost at the time of acquisition, is
charged to the allowance for loan losses. The Bank had no OREO for the years
ended December 31, 2002 and 2001. During 2001, the Bank acquired a property in
the amount of $117,000 and disposed of two properties including the one that was
acquired during 2000 in the amount of $375,000 with a gain of $115,460. At
December 31, 2000, the outstanding OREO was $375,000.

DEPOSITS

         Deposits are the Bank's primary source of funds. Total deposits at
December 31, 2002, 2001 and 2000 were $760.0 million, $692.8 million and $646.4
million, respectively. The Bank's average deposits were $733.2 million, $725.6
million and $582.0 million for the years ended December 31, 2002, 2001 and 2000,
respectively. The ratio of average noninterest-bearing deposits to average total
deposits was 28.7%, 26.5% and 30.5% for the years ended December 31, 2002, 2001
and 2000, respectively. The Bank's average total cost of deposits was 1.74%,
3.06% and 3.36% for the years ended December 31, 2002, 2001 and 2000,
respectively.

         At December 31, 2002, core deposits, representing demand deposits and
low cost deposits, were $401.5 million, compared to $341.9 million and $313.7
million at December 31, 2001 and 2000, respectively, representing 52.8% of total
deposits at December 31, 2002 compared to 47.4% and 53.0% at December 31, 2001
and 2000, respectively. The average core deposits for 2002 were $379.7 million,
compared to $343.7 million and $308.7 million for 2001 and 2000, respectively.

         The Bank offers a wide array of deposit products in order to satisfy
its customers' needs, including noninterest-bearing checking accounts,
interest-bearing checking and savings accounts, money market accounts and TCD's,
through its branch system in order to foster retail deposit growth and to
maintain low cost of deposits. The Bank does not hold any brokered deposits.

         The following tables summarize the distribution of average daily
deposits and the average daily rates paid for the years indicated:



                                                                           AVERAGE DEPOSITS
                                                                      YEARS ENDED DECEMBER 31,
                                                                      ------------------------
                                                       2002                      2001                        2000
                                                       ----                      ----                        ----
                                             AVERAGE        AVERAGE    AVERAGE         AVERAGE    AVERAGE         AVERAGE
                                             BALANCE          RATE     BALANCE           RATE     BALANCE           RATE
                                             -------          ----     -------           ----     -------           ----
                                                                        (DOLLARS IN THOUSANDS)
                                                                                                
Demand, noninterest-bearing ............   $  210,778            -%   $  192,589            -%   $  177,727            -%
Money market ...........................      118,875         1.87       102,151         2.69        83,797         3.46
Super NOW ..............................        7,517         0.52         6,141         0.96         5,682         1.57
Savings ................................       42,505         0.68        42,833         1.32        41,515         2.50
Time certificates of deposit of
     $100,000 or more ..................      249,205         2.57       273,266         5.06       178,514         5.93
Other time .............................      104,355         3.05       108,587         4.62        94,769         5.22
                                           ----------         ----    ----------         ----    ----------         ----
       Total deposits ..................   $  733,235         1.66%   $  725,567         3.06%   $  582,004         3.36%
                                           ==========         ====    ==========         ====    ==========         ====



         The following table sets forth the scheduled maturities of the Bank's
time deposits in denominations of $100,000 or more at December 31, 2002:

                                 MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE



                                                                           AT DECEMBER 31, 2002
                                                                          ----------------------
                                                                          (DOLLARS IN THOUSANDS)
                                                                       
Three months or less.................................................          $ 154,243
Over three months through six months.................................             55,803
Over six months through twelve months................................             46,794
Over twelve months...................................................              1,812
                                                                               ---------
         Total.......................................................          $ 258,652
                                                                               =========


BORROWINGS FROM THE FEDERAL HOME LOAN BANK

         The Bank became a member of the FHLB in October 1999. The Bank
maintains a secured credit facility with the FHLB of San Francisco against which
the Bank may take advances. The Bank utilizes FHLB advances to fund loan growth
when longer-term deposit growth has not kept pace with loan demand. The terms of
this credit facility require the Bank to maintain in safekeeping with the FHLB
eligible collateral of at least 100% of outstanding advances. The outstanding
FHLB advances were $70.0 million at December 31, 2002 and zero at December 31,
2001. The average outstanding amount for 2002 was $33.3 million and the weighted
average rate was 3.5%.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information concerning quantitative and qualitative disclosures
about market risk called for by Item 305 of Regulation S-K is included as part
of Item 7 above. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Market Risk/Interest Rate Risk
Management".

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following financial statements and independent auditors' reports
are included in here in:



                                                                                                     PAGE
                                                                                                     ----
                                                                                                  
Independent Auditor's Report from PricewaterhouseCoopers LLP......................................    43

Independent Auditor's Report from KPMG LLP........................................................    44

Balance Sheets
   December 31, 2002 and 2001.....................................................................    45

Statements of Operations
   Years Ended December 31, 2002, 2001 and 2000...................................................    46

Statements of Changes in Stockholders' Equity and Comprehensive Income
   Years Ended December 31, 2002, 2001 and 2000...................................................    47

Statements of Cash Flows
   Years Ended December 31, 2002, 2001 and 2000...................................................    48

Notes to Financial Statements.....................................................................    49




                        REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of
Pacific Union Bank:

In our opinion, the accompanying balance sheet as of December 31, 2002 and the
related statements of operations, changes in stockholders' equity and
comprehensive income and cash flows present fairly, in all material respects,
the financial position of Pacific Union Bank ("the company") at December 31,
2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the Company as of December 31, 2001 and for each of the two years then ended
were audited by other independent accountants whose report dated January 11,
2002, except as to notes 14 (c) and 15 of the notes to the financial statements
accompanying their report, expressed an unqualified opinion on those statements.

As discussed in note 14, the company is subject to a consent order issued by the
FDIC.

Los Angeles, California
January 20, 2003



                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pacific Union Bank:

We have audited the accompanying balance sheet of Pacific Union Bank as of
December 31, 2001 and the related statements of operations, changes in
stockholders' equity and comprehensive income and cash flows for each of the
years in the two-year period ended December 31, 2001. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Union Bank as of
December 31, 2001 and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

Los Angeles, California
January 11, 2002



                               PACIFIC UNION BANK

                                 Balance Sheets

                           December 31, 2002 and 2001



                                                                              2002            2001
                                                                         -------------    -------------
                                                                                    
ASSETS
Cash and due  from banks - demand                                        $  24,054,519    $  25,971,442
Federal funds sold                                                          62,500,000       42,000,000
Due from banks - interest-bearing                                              210,654          102,511
Federal Home Loan Bank Stock                                                 3,537,800        1,503,800
Securities held-to-maturity, at amortized cost (fair value of
    $90,798,966 in 2002) (note 2)                                           89,313,683               --

Securities available-for-sale, at fair value (note 3)                       64,701,421      139,661,532

Loans                                                                      683,131,191      572,354,060
    Less allowance for loan losses                                          (8,872,995)      (9,467,490)
                                                                         -------------    -------------
               Net loans (note 4)                                          674,258,196      562,886,570
                                                                         -------------    -------------
Customers' acceptance liabilities                                              657,760          598,373
Bank premises and equipment, net (note 5)                                    6,610,142        9,338,467
Accrued interest receivable                                                  3,404,574        3,455,021
Deferred tax asset (note 8)                                                  4,663,046        3,318,530
Income taxes receivable                                                      1,116,038               --
Other assets                                                                 1,967,404          672,126
                                                                         -------------    -------------
               Total assets                                              $ 936,995,237    $ 789,508,372
                                                                         =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note: 7)

    Demand, non-interest bearing                                         $ 223,377,195    $ 203,360,228
    Demand, interest-bearing                                                 7,602,024        6,570,226
    Money market and savings                                               170,486,917      131,958,322
    Time certificates of deposit:
       Less than $100,000                                                   99,876,831      102,302,690
       $100,000 or more                                                    258,652,585      248,560,063
                                                                         -------------    -------------
               Total deposits                                              759,995,552      692,751,529
                                                                         -------------    -------------
Federal Home Loan Bank advances                                             70,000,000               --
Acceptance liabilities                                                         657,760          598,373
Accrued interest payable                                                     3,140,064        4,684,665
Other liabilities                                                            2,325,902        1,513,748
                                                                         -------------    -------------
               Total liabilities                                           836,119,278      699,548,315
                                                                         -------------    -------------

Commitments and Contingencies (note 11)

Stockholders' equity (notes 3, 9, and 15):
    Common stock, $6 par value.  Authorized 30,000,000 shares;
       issued and outstanding 10,621,554 shares in 2002 and 10,606,417
       shares in 2001                                                       63,724,507       56,820,088
    Capital surplus                                                         22,174,825       15,860,704
    Retained earnings                                                       14,283,984       15,703,322
    Accumulated other comprehensive gain - net unrealized
       gain on securities available-for-sale
                                                                               692,643        1,575,943
                                                                         -------------    -------------
                                                                           100,875,959       89,960,057
                                                                         -------------    -------------
                                                                         $ 936,995,237    $ 789,508,372
                                                                         =============    =============


                 See accompanying note to financial statements.


                               PACIFIC UNION BANK
                            Statements of Operations
                  Years ended December 31, 2002, 2001 and 2000



                                                                               2002             2001              2000
                                                                               ----             ----              ----
                                                                                                     
Interest income:
    Interest and fees on loans                                             $ 37,107,264     $  42,257,739     $   42,486,663
    Dividend on Federal Home Loan Bank stock                                    115,457            75,617            149,120
    Interest on securities held-to-maturity                                   2,013,163           265,552            647,481
    Interest on securities available-for-sale                                 5,979,170         9,244,815          8,609,965
    Interest on federal funds sold                                            1,143,880         3,382,300          1,216,959
    Other interest income                                                        19,176            50,238             58,586
                                                                           ------------     -------------     --------------
               Total interest income                                         46,378,110        55,276,261         53,168,774
                                                                           ------------     -------------     --------------
Interest expense:
    Demand - interest bearing                                                    38,953            58,721             89,458
    Savings and money market                                                  2,515,999         3,308,177          3,941,294
    Time certificates of deposit:
       Less than $100,000                                                     3,179,952         5,015,274          4,948,032
       $100,000 or more                                                       6,412,516        13,820,403         10,590,668
    Other borrowings                                                          1,163,409               907            556,578
                                                                           ------------     -------------     --------------
               Total interest expense                                        13,310,829        22,203,482         20,126,030
                                                                           ------------     -------------     --------------
               Net interest income before provision for loan losses          33,067,281        33,072,779         33,042,744

Provision for loan losses                                                     1,100,000         1,300,000          1,300,000
                                                                           ------------     -------------     --------------
               Net interest income after provision for loan losses           31,967,281        31,772,779         31,742,744
                                                                           ------------     -------------     --------------
Other income:
    Service charges on deposit accounts                                       6,484,137         6,572,888          5,652,034
    Remittance fees                                                             912,045           918,421            996,139
    Letter of credit related fees                                               807,397           767,741            908,662
    Net other real estate owned income                                               --           113,708            357,226
    Gain on sale of loans                                                       705,351                --                 --
    Gain on sale of securities                                                  824,472                --                 --
    Gain on sale of premise                                                   1,193,797                --                 --
    Other operating income                                                    1,718,108         1,533,777          1,421,137
                                                                           ------------     -------------     --------------
               Total other income                                            12,645,307         9,906,535          9,335,198
                                                                           ------------     -------------     --------------
Other expenses:
    Salaries and employee benefits                                           12,347,558        11,946,311         11,572,648
    Security guards                                                             937,700           868,007            783,381
    Net occupancy expense                                                     2,872,931         2,902,808          2,893,910
    Equipment expense                                                         1,384,149         1,246,714          1,077,869
    Data processing                                                           1,942,384         1,713,408          1,266,878
    Net other real estate owned expense                                              41                --                 --
    Office supplies                                                             482,764           552,627            561,250
    Legal and professional                                                    1,206,560           756,620            479,877
    Advertising and public relations                                            844,688           568,332            578,612
    Communication expenses                                                    1,034,561           947,838            926,099
    Other operating expenses                                                  2,503,874         1,893,751          1,942,937
                                                                           ------------     -------------     --------------
               Total other expenses                                          25,557,210        23,396,416         22,083,461
                                                                           ------------     -------------     --------------
               Income before income taxes                                    19,055,378        18,282,898         18,994,481
Income taxes                                                                  7,404,000         6,711,000          6,843,500
                                                                           ------------     -------------     --------------
               Net income                                                  $ 11,651,378     $  11,571,898     $   12,150,981
                                                                           ============     =============     ==============
Net income per share (Note 15)
     Basic                                                                 $       1.10     $        1.09     $         1.32
     Diluted                                                                       1.09              1.08               1.32
                                                                           ============     =============     ==============
Weighted-average common shares outstanding (Note 15)
     Basic                                                                   10,616,017        10,600,306          9,180,807
     Diluted                                                                 10,702,092        10,695,306          9,188,491


                 See accompanying note to financial statements.



                               PACIFIC UNION BANK

     Statements of Changes in Stockholders' Equity and Comprehensive Income

                  Years ended December 31, 2002, 2001 and 2000



                                                                                                      Accumulated
                                          Number of                                                      other            Total
                                           shares       Common        Capital         Retained       comprehensive    stockholder's
                                         Outstanding    stock         surplus         earnings       income (loss)       equity
                                         -----------    -----         -------         --------       -------------       ------
                                                                                                    
Balance at December 31, 1999              6,666,667  $  40,000,000  $  10,000,000  $     9,528,293   $   (3,086,606)  $  56,441,687
Issuance of common stock                  1,935,000     11,610,000      1,464,563               --               --      13,074,563
Cash dividend paid                               --             --             --       (8,000,000)              --      (8,000,000)
Comprehensive income:
    Net income                                   --             --             --       12,150,981               --      12,150,981
    Change in unrealized gain (loss) on
        securities available-for-sale,
        net of tax effect of $1,345,034          --             --             --               --        2,631,541       2,631,541
Total comprehensive income                       --             --             --               --               --      14,782,522
                                         ----------  -------------  -------------  ---------------   --------------   -------------
Balance at December 31, 2000              8,601,667  $  51,610,000  $  11,464,563  $    13,679,274   $     (455,065)  $  76,298,772
                                                                                                                      =============
Stock dividend                              860,164      5,160,984      4,386,836       (9,547,820)              --              --
Cash paid for fractional shares                  --             --             --              (30)              --             (30)
Stock options exercised                       8,184         49,104          9,305               --               --          58,409
Comprehensive income:
    Net income                                   --             --             --       11,571,898               --      11,571,898
    Change in unrealized gain (loss) on
        securities available-for-sale,
        net of tax effect of $1,037,150          --             --             --               --        2,031,008       2,031,008
Total comprehensive income                       --             --             --               --               --      13,602,906
                                         ----------  -------------  -------------  ---------------   --------------   -------------
Balance at December 31, 2001              9,470,015  $  56,820,088  $  15,860,704  $    15,703,322   $    1,575,943   $  89,960,057
                                                                                                                      =============
Stock options exercised                      14,992         85,137         11,545               --               --          96,682
Stock dividend                            1,136,547      6,819,282      6,251,009      (13,070,291)              --              --
Non qualified stock options exercised                           --         51,567               --               --          51,567
Cash paid for fractional shares                  --             --             --             (425)              --            (425)
Comprehensive income:
    Net income                                   --             --             --       11,651,378               --      11,651,378
    Change in unrealized gain (loss) on
        securities available-for-sale,
        net of tax effect of $289,515            --             --             --               --         (883,300)       (883,300)
                                                                                                                      -------------
Total comprehensive income                       --             --             --               --               --      10,768,078
                                         ----------  -------------  -------------  ---------------   --------------   -------------
Balance at December 31, 2002             10,621,554  $  63,724,507  $  22,174,825  $    14,283,984   $      692,643   $ 100,875,959
                                         ==========  =============  =============  ===============   ==============   =============


                 See accompanying notes to financial statements.



                               PACIFIC UNION BANK

                            Statements of Cash Flows

                  Years ended December 31, 2002, 2001 and 2000



                                                                                  2002            2001              2000
                                                                                  ----            ----              -----
                                                                                                       
Cash flows from operating activities:
    Net income                                                                $ 11,651,378    $  11,571,898     $ 12,150,981
    Adjustments to reconcile net income to net cash provided
      by operating activities:
      Depreciation and amortization expenses                                     1,346,077        1,358,581        1,267,565
      Provision for loan losses                                                  1,100,000        1,300,000        1,300,000
      Gain on sale of securities                                                  (824,472)              --               --
      Amortization of premium on securities
          held-to-maturity, net                                                   (722,824)           1,387           29,948
      Amortization of premium on securities
          available-for-sale, net                                                 (100,250)         118,990           69,430
      Gain on disposal of Bank premises                                         (1,193,797)              --               --
      Net (gain) loss on disposal of Bank equipment                                 (6,114)           9,084          (18,864)
      Gain on sale of loans                                                       (705,351)              --               --
      Origination of loans held for sale                                        (2,260,426)              --               --
      Proceeds from sale of loans held for sale                                  2,380,000               --               --
      Net gain on sale of other real estate owned                                       --         (115,460)        (362,473)
      Decrease (increase) in accrued interest receivable                            50,447        1,479,283         (894,692)
      Increase in deferred income taxes                                         (1,055,001)        (479,999)        (365,201)
      (Increase) decrease in income taxes receivable                            (1,116,038)         539,950         (145,686)
      Stock dividend on Federal Home Loan Bank stock                              (102,700)         (89,500)        (127,600)
      (Increase) decrease in other assets                                       (1,295,278)          59,979          (89,092)
      (Decrease) increase in accrued interest payable                           (1,544,601)      (1,627,173)       3,064,084
      Increase (decrease) in other liabilities                                     812,154         (250,058)         (42,112)
                                                                              ------------    -------------     ------------
               Net cash provided by operating activities                         6,413,204       13,876,962       15,836,288
                                                                              ------------    -------------     ------------
Cash flows from investing activities:
    (Increase) decrease in Federal Home Loan Bank stock                         (1,931,300)              --          713,300
    Proceeds from maturities and redemptions of securities held-to-maturity     11,883,552        6,005,687        5,724,326
    Proceeds from maturities and redemptions of securities
      available-for-sale                                                        73,260,223       97,863,961       22,188,501
    Proceeds from sale of securities available-for-sale                         30,125,842               --               --
    Purchase of securities held-to-maturity                                   (100,474,410)              --               --
    Purchase of securities available-for-sale                                  (28,674,047)     (84,479,380)     (24,752,854)
    Proceeds from recoveries of written-off loans                                  110,488          580,525          431,849
    Net increase in loans                                                     (111,996,337)    (105,855,094)     (83,845,944)
    Purchases of Bank premises and equipment                                    (1,013,395)        (741,232)      (1,884,261)
    Proceeds from sale of Bank premises and equipment                            3,595,554               --           48,700
    Proceeds from sale of other real estate owned                                       --          490,943          582,929
                                                                              ------------    -------------     ------------
               Net cash used in investing activities                          (125,113,831)     (86,134,590)     (80,793,454)
                                                                              ------------    -------------     ------------
Cash flows from financing activities:
    Net increase (decrease) in demand deposits, non-interest bearing            20,016,967       14,207,901       (7,669,415)
    Net increase (decrease) in demand deposits, interest-bearing                 1,031,798          (32,665)         922,505
    Net increase in money market and savings deposits                           38,528,595       14,048,687       15,105,770
    Net increase in time certificates of deposit                                 7,666,663       18,123,837      104,924,896
    Increase in other borrowed funds                                            70,000,000               --               --
    Proceeds from issuance of common stock                                              --               --       13,074,563
    Proceeds from exercise of stock options                                        148,249           58,409               --
    Cash dividends paid                                                                 --               --       (8,000,000)
    Cash paid for fractional shares                                                   (425)             (30)              --
                                                                              ------------    -------------     ------------
               Net cash provided by financing activities                       137,391,847       46,406,139      118,358,319
                                                                              ------------    -------------     ------------
               Net increase (decrease) in cash and cash equivalents             18,691,220      (25,851,489)      53,401,153
                                                                              ------------    -------------     ------------
Cash and cash equivalents at beginning of year                                  68,073,953       93,925,442       40,524,289
                                                                              ------------    -------------     ------------
Cash and cash equivalents at end of year                                      $ 86,765,173    $  68,073,953     $ 93,925,442
                                                                              ============    =============     ============

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
      Interest                                                                $ 14,855,429    $  23,830,656     $ 17,061,946
      Income taxes                                                               8,757,760        6,134,000        7,416,000
                                                                              ============    =============     ============
    Noncash investing and financing activities:
      Real estate acquired in settlement of loans                             $         --    $     117,000     $    595,939
      Stock dividend                                                            13,070,291        9,547,820               --
                                                                              ============    =============     ============


                See accompanying notes to financial statements.



                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       ORGANIZATION

              Pacific Union Bank (the Bank), formerly known as California Korea
              Bank, was incorporated as a state-chartered bank in February 1974.
              The Bank currently operates ten banking offices in Southern
              California and two banking offices in Northern California. The
              Bank also has a loan production office in Seattle, Washington.
              During 2000, the Bank issued common stock in an initial public
              offering. Korea Exchange Bank ("KEB"), formally the sole owner of
              the Bank, now owns 62.4% of the outstanding shares. The remaining
              shares are publicly traded.

                  (a)      GENERAL

              The accounting and reporting policies of the Bank are in
              accordance with accounting principles generally accepted in the
              United States of America and conform to general practices within
              the banking industry. The financial statements are generally
              prepared on the accrual basis of accounting. In preparing the
              financial statements, management is required to make estimates and
              assumptions that affect the reported amounts of assets and
              liabilities as of the date of the balance sheet and revenues and
              expenses for the period. Actual results could differ from those
              estimates.

                  (b)      SECURITIES HELD-TO-MATURITY

              The Bank has classified certain securities as held-to-maturity
              securities. Securities held-to-maturity are carried at cost,
              adjusted for the accretion of discounts and the amortization of
              premiums. The Bank classifies securities as held-to-maturity when
              it determines that it has the ability and intent to hold such
              securities to maturity. Accreted discounts and amortized premiums
              are included in interest income. Gains and losses realized from
              unforeseen disposition, or determination of impairment of value
              deemed other than temporary, of securities held-to-maturity are
              recorded in income using the specific-identification method.

       (c)    SECURITIES AVAILABLE-FOR-SALE

              The Bank has classified certain securities as available-for-sale.
              The Bank classifies securities as available-for-sale when it
              determines that such securities may be sold at a future date or if
              there are foreseeable circumstances under which the Bank would
              sell such securities. Securities designated as available-for-sale
              are recorded at fair value, with unrealized gains and losses
              excluded from earnings and reported as a separate component of
              other comprehensive income until realized. Accreted discounts and
              amortized premiums are included in interest income. Gains and
              losses realized from disposition, or determination of impairment
              of value deemed other than temporary, of securities
              available-for-sale are recorded in income using the
              specific-identification method.

       (d)    LOANS AND ALLOWANCE FOR LOAN LOSSES

              Loans are recorded in the financial statements at the principal
              amount outstanding, net of unearned income and the allowance for
              loan losses. Interest income is accrued on all loans, except when
              loans are delinquent 90 days or more, at which time such loans are
              generally placed on a nonaccrual status. Nonaccrual loans are
              reclassified to accrual status when the Bank has received a
              minimum of six full payments based on the contractual terms of the
              loan agreement and management determines that future payments can
              be sustained to support the overall value of the loan.

              The allowance for loan losses is maintained at a level considered
              adequate by management to provide for potential loan losses.
              Management, in determining the adequacy of the allowance for loan
              losses as well as the appropriate provision for loan losses in any
              given year, takes into consideration (1) detailed analysis of
              individual loans for which full recovery may not be assured, (2)
              loan loss experience, (3) growth in the loan portfolio, (4) an
              assessment of the effect of current economic conditions on the
              loan portfolio and (5) examinations conducted by the Bank's
              supervisory authorities.

              Management believes that the allowance for loan losses is
              adequate. While management uses available information to recognize
              loan loss provisions, future additions to the allowance may be
              necessary based on changes in economic conditions. In addition,
              various regulatory agencies, as an integral part of their
              examination process, periodically review the Bank's allowance for
              loan losses. Such agencies may require the Bank to recognize
              additions to the allowance based on their judgments about
              information available to them at the time of their examination.



                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

              Management, based on current information and events regarding the
              borrowers' ability to repay their obligations, evaluates
              individual loans for impairment. A loan is considered to be
              impaired when it is probable that the Bank will be

              unable to collect all amounts due according to the contractual
              terms of the loan agreement. When a loan is considered to be
              impaired, the amount of the impairment is measured 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 impairment is measured based on the fair value of
              the collateral if the loan is collateral dependent. Impairment
              losses are included in the allowance for loan losses accounts
              through a charge to the provision for loan losses. Interest income
              is recognized on the accrual basis for impaired loans not meeting
              the criteria for nonaccrual.

       (e)    OTHER REAL ESTATE OWNED

              Other real estate owned acquired in settlement of loans is carried
              at the lower of cost or fair value, less estimated costs to sell.
              Any excess loan balance over the fair value, less selling costs at
              the time of acquisition, is charged to the allowance for loan
              losses. Operating expenses of such property, net of related
              income, subsequent declines in estimated fair value and gains and
              losses on their disposition, are included in other income or
              expense, as appropriate.

       (f)    LOAN FEES

              Loan origination fees and certain direct loan origination costs
              associated with the originated loans are deferred and recognized
              over the lives of the loans as an adjustment to the loans' yield.
              The Bank does not amortize net deferred loan fees for nonaccrual
              loans.

       (g)    BANK PREMISES AND EQUIPMENT

              Bank premises and equipment are stated at cost, less accumulated
              depreciation and amortization. Depreciation and amortization of
              Bank premises and equipment are provided on the straight-line
              method over the following estimated useful lives:

                  Building                        25 years
                  Equipment and furnishings       3 to 10 years
                  Leasehold improvements          Life of lease or improvements,
                                                   whichever is shorter

       (h)    INCOME TAXES

              The Bank provides for income taxes using the asset and liability
              method. Under this method, deferred tax assets and liabilities are
              recognized for the future tax consequences attributable to
              differences between financial statement carrying amounts of
              existing assets and liabilities and their respective tax bases and
              operating loss and tax credit carryforwards. Deferred tax assets
              and liabilities are measured using enacted tax rates expected to
              apply to taxable income in the years in which those temporary
              differences are expected to be recovered or settled. The effect on
              deferred tax assets and liabilities of a change in tax rates is
              recognized in income in the period that includes the enactment
              date.

              The Bank provides for California franchise taxes using the
              water's-edge method based on the total U.S. income of KEB
              branches, agency and subsidiary. Accordingly, the provision for
              California franchise taxes provided may be different from the
              amount computed by applying the California franchise tax rate to
              income before income taxes.

       (i)    COMPREHENSIVE INCOME

              Comprehensive income consists of net income and net unrealized
              gains (losses) on securities available-for-sale and is presented
              in the statement of stockholders' equity and comprehensive income.

       (j)    RECLASSIFICATIONS

              Certain reclassifications of prior year's data have been made to
              conform to the current year presentation.

       (k)    STATEMENT OF CASH FLOWS

              For purposes of the statement of cash flows, the Bank considers
              "cash and due from banks - demand," "federal funds sold" and "due
              from banks - interest-bearing" as cash and cash equivalents.



                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

       (l)    RECENT ACCOUNTING PRONOUNCEMENTS

              In, May 2002, Statement of Financial Accounting Standards No. 145,
              Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13,
              and Technical Corrections (SFAS No. 145), was issued. SFAS No. 145
              will require gains and losses on extinguishments of debt to be
              classified as income or loss from continuing operations rather
              than as

              extraordinary items as previously required under SFAS No. 4.
              Extraordinary treatment will no longer be permitted for certain
              extinguishments considered to be part of a company s risk
              management strategy. SFAS 145 also amends SFAS No. 13 to require
              certain modifications to capital leases be treated as a
              sale-leaseback and modifies the accounting for sub-leases when the
              original lessee remains a secondary obligor (or guarantor). SFAS
              No. 145 is effective for financial statements issued after May 15,
              2002, and with respect to the impact of the reporting requirements
              of changes made to SFAS No. 4 for fiscal years beginning after May
              15, 2002. The Bank does not expect the adoption of SFAS No. 145 to
              have a material impact on its financial condition or results of
              operations

              In November 2002, FASB Interpretation No. 45, Guarantors
              Accounting and Disclosure Requirements for Guarantees, Including
              Indirect Guarantees of Indebtedness of Others, an Interpretation
              of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation
              No. 34, (FIN No. 45) was issued. FIN No. 45 clarifies requirements
              relating to the guarantor's accounting for, and disclosure of, the
              issuance of certain types of guarantees. FIN No. 45 requires that
              upon issuance of a guarantee, companies recognize a liability for
              the fair value of the obligation it assumes under that guarantee.
              The Company has adopted the annual disclosure provisions of FIN
              No. 45 in the year ended December 31, 2002 consolidated financial
              statements. The Bank will adopt the provisions for initial
              recognition and measurement and interim disclosures during the
              first quarter of 2003. The Bank is currently evaluating the impact
              of adopting FIN No. 45.

              In October 2002, Statement of Financial Accounting No. 147,
              Acquisitions of Certain Financial Institutions (SFAS No. 147).
              SFAS No. 147 applies to all acquisitions of financial institutions
              except those between mutual enterprises. This Statement amends
              FASB Statement No. 144, Accounting for the Impairment or Disposal
              of Long-Lived Assets, to include in its scope long-term
              customer-relationship intangible assets of financial institutions
              such as depositor- and borrower-relationship intangible assets and
              credit cardholder intangible assets. Consequently, those
              intangible assets are subject to the same undiscounted cash flow
              recoverability test and impairment loss recognition and
              measurement provisions that Statement 144 requires for other
              long-lived assets that are held and used. The provisions of this
              Statement relating to the application of the purchase method of
              accounting, was effective for acquisitions for which the date of
              acquisition is on or after October 1, 2002. The provisions of this
              Statement relating to accounting for the impairment or disposal of
              certain long-term customer-relationship intangible assets were
              effective on October 1, 2002. Transition provisions for previously
              recognized unidentifiable intangible assets in were effective on
              October 1, 2002, with earlier application permitted. The adoption
              of FASB No. 147 is not expected to have a material effect on the
              financial statements.

              In December 2002, Statement of Financial Accounting Standards No.
              148, Accounting for Stock-Based Compensation-Transition and
              Disclosure-An Amendment of SFAS No. 123 (SFAS No. 148), was
              issued. SFAS No. 148 amends SFAS No. 123, Accounting for
              Stock-Based Compensation ( SFAS No. 123 ), to provide alternative
              methods of transition for a voluntary change to the
              fair-value-based method of accounting for stock-based employee
              compensation. In addition, this Statement amends the disclosure
              requirements of SFAS 123 to require prominent disclosures in not
              only annual, but also interim financial statements about the
              effect the fair value method would have had on reported results.
              The transition and annual disclosure requirements of SFAS No. 148
              are effective for fiscal years ending after December 15, 2002. The
              interim disclosure requirements are effective for interim periods
              beginning after December 15, 2002. The Bank is currently
              evaluating the impact of adopting SFAS No. 148.

              In January 2003, The Financial Accounting Standards Board (FASB or
              the "Board") issued FASB Interpretation No. 46, Consolidation of
              Variable Interest Entities, an interpretation of ARB No. 51 (FIN
              No. 46). This Interpretation addresses consolidation by business
              enterprises of variable interest entities and clarifies the
              application of Accounting Research Bulletin No. 51, Consolidated
              Financial Statements, to certain entities in which equity
              investors do not have the characteristics of a controlling
              financial interest or do not have sufficient equity at risk for
              the entity to finance its activities without additional
              subordinated financial support from other parties. FIN No. 46
              applies immediately to variable interest entities created after
              January 31, 2003, and to variable interest entities in which an
              enterprise obtains an interest after that date. It applies in the
              first fiscal year or interim period beginning after June 15, 2003,
              to variable interest entities in which an enterprise holds a
              variable interest that it acquired before February 1, 2003.
              Certain


                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

                  disclosures are effective immediately. The adoption of FIN No.
                  46 is not expected to have a material effect on the financial
                  statements.

(2)      SECURITIES HELD-TO-MATURITY

         The amortized cost, estimated fair value and maturities of securities
         held-to-maturity at December 31, 2002 are summarized as follows:



                                                                            2002
                                         --------------------------------------------------------------------------
                                           AMORTIZED             GROSS                GROSS          ESTIMATED FAIR
                                             COST           UNREALIZED GAINS     UNREALIZED LOSSES        VALUE
                                         ------------       ----------------    ------------------   --------------
                                                                                         
Securities held-to-maturity:
    Mortgage-backed securities           $ 89,313,683           1,485,283                 --         $  90,798,966
                                         ------------           ---------             ------         -------------
              Total                      $ 89,313,683           1,485,283                 --         $  90,798,966
                                         ============           =========             ======         =============


         Securities held-to-maturity with an amortized cost of $89,313,683 at
         December 31, 2002 were pledged to secure a borrowing line of credit and
         for other purposes as required or permitted by law.

(3)      SECURITIES AVAILABLE-FOR-SALE

         The following is a summary of the major components of securities
         available-for-sale and a comparison of amortized cost, gross unrealized
         gains and losses, estimated fair value and maturities at December 31,
         2002 and 2001:



                                                                   2002
                                         --------------------------------------------------------
                                                          GROSS        GROSS
                                          AMORTIZED     UNREALIZED   UNREALIZED    ESTIMATED FAIR
                                            COST          GAINS        LOSSES           VALUE
                                         -----------   -----------   -----------   --------------
                                                                       
Securities available-for-sale:
    U.S. Treasury securities:
      Due in one year or less            $        --           --             --   $           --
      Due after one year through five
        years                              1,002,619       70,975             --        1,073,594
    U.S. government agencies:
      Due in one year or less              6,000,000      171,477             --        6,171,477
      Due after one year through five
        years                             19,995,990      122,985             --       20,118,975
    Mortgage-backed securities            33,999,977      730,101             --       34,730,078
    State and political subdivisions :
      Due in one year or less              1,504,263       39,121             --        1,543,384
      Due after one year through five
        years                              1,003,329       60,584             --        1,063,913
                                         -----------   ----------    -----------   --------------
              Total                      $63,506,178    1,195,243             --   $   64,701,421
                                         ===========   ==========    ===========   ==============




                                                                    2001
                                         ------------------------------------------------------------
                                                           GROSS           GROSS
                                          AMORTIZED      UNREALIZED     UNREALIZED     ESTIMATED FAIR
                                            COST           GAINS           LOSSES          VALUE
                                         ------------   ------------   ------------    --------------
                                                                           
Securities available-for-sale:
    U.S. Treasury securities:
      Due in one year or less            $    500,000        11,250           --       $     511,250
      Due after one year through five
        years                               1,004,233        57,017           --           1,061,250
    U.S. government agencies:
      Due in one year or less               4,000,000        31,106           --           4,031,106
      Due after one year through five
        years                              67,000,000     1,656,281           --          68,656,281
    Mortgage-backed securities             61,090,062       546,404      (44,972)         61,591,494
    State and political subdivisions :
      Due in one year or less               1,180,986        17,628           --           1,198,614
      Due after one year through five
        years                               2,518,192        93,345           --           2,611,537
                                         ------------   -----------      -------       -------------
              Total                      $137,293,473     2,413,031      (44,972)      $ 139,661,532
                                         ============   ===========      =======       =============




                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

         Securities available-for-sale of $53,350,436 and $70,236,750 at
         December 31, 2002 and December 31, 2001, respectively, were pledged to
         secure a borrowing line of credit and for other purposes as required or
         permitted by law.

(4)      LOANS AND ALLOWANCE FOR LOAN LOSSES

         Total loans at December 31, 2002 and 2001 consisted of the following:



                                             2002          2001
                                         ------------   ------------
                                                  
Commercial and industrial                $125,864,751   $110,656,394
Installment loans, net                     21,223,988     14,527,139
Real estate loans                         434,072,716    368,729,336
Home equity                                 6,018,120      4,725,871
Bills bought                                6,616,931      9,399,358
Trade finance                              12,488,147      7,990,175
SBA loans                                  74,560,313     53,387,876
Other                                       3,618,998      3,961,099
                                         ------------   ------------
                                         $684,463,964   $573,377,248
Less deferred loan fees                    (1,332,773)    (1,023,188)
                                         ------------   ------------
Total loans                              $683,131,191   $572,354,060
                                         ============   ============


         Substantially all of the Bank's lending activity is with customers
         located in Southern California. The Bank concentrates its lending in
         commercial, installment and real estate loans generally collateralized
         with real estate properties in Southern California. Loans are generally
         expected to be paid off from the operating profit of the borrower or by
         refinancing through third parties. The majority of the commercial and
         real estate loans are made to small businesses. The loans are not
         concentrated in any specific industry. Bills bought transactions
         primarily consist of credit lines extended to banks in South Korea.
         These represent short-term acceptances drawn under normal commercial
         letters of credit transactions.

         The Bank services Small Business Administration (SBA) loans for
         investors which are not included in the accompanying financial
         statements. The total balance of SBA loans serviced for others by the
         Bank was approximately $9,151,000 and $137,000 as of December 31, 2002
         and 2001, respectively.

         Loans on which the accrual of interest has been discontinued amounted
         to $1,998,000 and $5,021,000 at December 31, 2002 and 2001,
         respectively. If interest on these loans had been accrued, interest
         income would have increased by approximately $41,000 in 2002 and
         $72,000 in 2001.

         Loans 90 days or more past due as to interest and/or principal which
         are not on nonaccrual status approximated $28,000 and $39,000 at
         December 31, 2002 and 2001, respectively.

         Restructured loans where the terms have been altered to provide a
         reduced repayment schedule amounted to zero at December 31, 2002 and
         2001.

         Total recorded investment in impaired loans was $2,551,000 and
         $5,369,000 with a related impairment allowance of $371,000 and $720,000
         at December 31, 2002 and 2001, respectively. During the years ended
         December 31, 2002, 2001 and 2000, respectively, the Bank's average
         investment in impaired loans was $7,248,000, $3,645,000 and $1,259,000.
         Interest income of $129,000, $138,000 and $106,000 would have been
         recorded during the years ended December 31, 2002, 2001 and 2000,
         respectively, had the loans not been considered impaired. The Bank has
         no commitments to lend additional funds to debtors whose terms have
         been modified in a troubled debt restructuring.



                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

         Changes in the allowance for loan losses are summarized as follows:



                                                2002            2001           2000
                                             -----------    -----------    -----------
                                                                  
Balance at beginning of year                 $ 9,467,490    $ 8,894,927    $ 8,350,870

Provision charged to operating expense         1,100,000      1,300,000      1,300,000

Loans charged off                             (1,804,983)    (1,307,962)    (1,187,792)
Recoveries on loans previously charged off       110,488        580,525        431,849
                                             -----------    -----------    -----------
             Net loan charge offs             (1,694,495)      (727,437)      (755,943)
                                             -----------    -----------    -----------
Balance at end of year                       $ 8,872,995    $ 9,467,490    $ 8,894,927
                                             ===========    ===========    ===========


(5)      BANK PREMISES AND EQUIPMENT

         Bank premises and equipment at December 31, 2002 and 2001 consisted of:



                                                     2002            2001
                                                 ------------    ------------
                                                           
Land                                             $  1,511,425    $  2,969,629
Building                                            5,303,227       7,613,835
Equipment and furnishings                           8,141,377       7,626,518
Leasehold improvements                              4,561,162       4,443,667
                                                 ------------    ------------
                                                   19,517,191      22,653,649
Less accumulated depreciation and amortization    (12,907,049)    (13,315,182)
                                                 ------------    ------------
Net premises and equipment                       $  6,610,142    $  9,338,467
                                                 ============    ============


         Depreciation and amortization expense for the years ended December 31,
         2002, 2001 and 2000 amounted to $1,346,077, $1,358,581 and $1,267,565,
         respectively.

(6)      OTHER REAL ESTATE OWNED

         For the years ended December 31, 2002, 2001 and 2000, net other real
         estate owned (income) expense was comprised of the following:



                                                   2002       2001         2000
                                                ---------   ---------    ---------
                                                                
Net gain on sale of other real estate owned     $      --   $(115,460)   $(362,473)

Direct holding costs, net                              41       1,752        5,247
                                                ---------   ---------    ---------
         Net other real estate owned (income)
                expense                         $      41   $(113,708)   $(357,226)
                                                =========   =========    =========




                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001

(7)      DEPOSITS

         Time deposits by maturity dates are as follows at December 31,



                                        2002           2001
                                    ------------   ------------
                                             
Less than three months              $197,403,240   $221,804,864
After three months to six months      78,887,240     64,774,151
After six months to twelve months     70,081,859     52,366,695
After twelve months                   12,157,077     11,917,043
                                    ------------   ------------
         Total time deposits        $358,529,416   $350,862,753
                                    ============   ============


         A summary of interest expenses on deposits is as follows for the years
         ended December 31, 2002, 2001 and 2000.



                                   2002          2001           2000
                                -----------   -----------   -----------
                                                   
Demand - interest bearing       $    38,953   $    58,721   $    89,458
Savings and money market          2,515,999     3,308,177     3,941,294
Time certificates of deposit:
      Less than $100,000          3,179,952     5,015,274     4,948,032
      $100,000 or more            6,412,516    13,820,403    10,590,668
Other borrowings                  1,163,409           907       556,578
                                -----------   -----------   -----------
      Total interest expense    $13,310,829   $22,203,482   $20,126,030
                                ===========   ===========   ===========


(8)      INCOME TAXES

         The provision for income taxes includes the following:



                                                                       DECEMBER 31
                                                        -----------------------------------------
                                                           2002           2001           2000
                                                        -----------    -----------    -----------
                                                                             
Current:
    Federal                                             $ 5,465,500    $ 6,580,000    $ 6,913,000
    State                                                 2,993,500        611,000        295,000
                                                        -----------    -----------    -----------
                                                          8,459,000      7,191,000      7,208,000
                                                        -----------    -----------    -----------
Deferred:
    Federal                                                 (22,000)      (480,000)      (365,000)
    State                                                  (439,000)      (186,000)        26,000
                                                        -----------    -----------    -----------
                                                           (461,000)      (666,000)      (339,000)
                                                        -----------    -----------    -----------
Total:
    Federal                                               5,443,500      6,100,000      6,548,000
    State                                                 2,554,500        425,000        321,000

Change in valuation allowance for deferred tax assets      (594,000)       186,000        (25,500)
                                                        -----------    -----------    -----------
           Total income tax expense                     $ 7,404,000    $ 6,711,000    $ 6,843,500
                                                        ===========    ===========    ===========


      Applicable income tax expense in 2002, 2001 and 2000 resulted in effective
      tax rates of 38.86%, 36.71% and 36.03%, respectively, of income before
      income taxes. The primary reasons for the differences from the federal
      statutory tax rate of 35% in 2002, 2001 and 2000 are as follows:



                               PACIFIC UNION BANK

                          Notes to Financial Statements

                           December 31, 2002 and 2001



                                                              2002           2001           2000
                                                           -----------    -----------    -----------
                                                                                
Income tax expense at federal statutory rate               $ 6,669,000    $ 6,399,000    $ 6,648,000
State franchise taxes, net of federal income tax benefit     1,660,000        276,000        208,000
Valuation allowance                                           (594,000)       186,000        (25,500)
Other, net                                                    (331,000)      (150,000)        13,000
                                                           -----------    -----------    -----------
                                                           $ 7,404,000    $ 6,711,000    $ 6,843,500
                                                           ===========    ===========    ===========


         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets at December 31, 2002 and 2001 are
         presented below:



                                                                                    2002           2001
                                                                                 -----------    -----------
                                                                                          
Deferred tax assets:
    Loans principally due to allowance for loan losses                           $ 3,897,000    $ 3,723,000
    Unrealized loss on securities available-for-sale                                      --             --
    Bank premises and equipment principally due to differences in depreciation       125,000        423,000
    Federal deduction or state tax                                                 1,079,000        485,000
    Other                                                                             64,646         73,646
                                                                                 -----------    -----------
              Total gross deferred tax assets                                      5,165,646      4,704,646
    Less valuation allowance                                                              --       (594,000)
                                                                                 -----------    -----------
              Net deferred tax assets                                              5,165,646      4,110,646
                                                                                 -----------    -----------
Deferred tax liabilities:
        Net unrealized gain on securities available-for-sale                        (502,600)      (792,116)
                                                                                 -----------    -----------
                        Net deferred tax assets, net                             $ 4,663,046    $ 3,318,530
                                                                                 ===========    ===========


         In assessing the realizability 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. Based
         upon the level of historical taxable income and projections for future
         taxable income over the periods in which the deferred tax assets are
         deductible, the Bank has concluded that a valuation allowance against
         the deferred tax asset is not required.

(9)      STOCK OPTIONS

         The Bank adopted a stock option plan in 2000, under which options may
         be granted to key employees and directors of the Bank. The option price
         may not be less than the fair value of the Bank's stock on the
         effective date of the grant. The Bank authorized a total of 586,000
         options under the plan as of December 31, 2000. These options will vest
         over five to ten years and may be exercised over five to ten year
         period. The number and price per share of outstanding options has been
         adjusted to reflect the stock dividend of March 28, 2002 (See note 15).



         Activity in the stock option plan for the years ended December 31, 2002
         and 2001 follows:



                                                      2002                        2001
                                                      ----                        ----
                                                            WEIGHTED                     WEIGHTED
                                             NUMBER OF      AVERAGE      NUMBER OF        AVERAGE
                                              SHARES     EXERCISE PRICE   SHARES      EXERCISE PRICE
                                             ---------   --------------  ---------    -----------------
                                                                          
Options outstanding, beginning of year        263,560       $   8.91       259,400       $   8.02
Options granted                               117,500       $  17.38        52,300       $  11.04
Options exercised                             (14,996)      $   6.37        (8,184)      $   7.14
Options expired / canceled                    (79,789)      $   7.08       (68,486)      $   7.33
Stock dividend                                 25,964       $   8.30        28,530       $   8.78
                                              -------       --------      --------       --------
Options outstanding, end of year              312,239       $  11.15       263,560       $   8.91
                                              =======       ========      ========       ========


         The Bank applies Accounting Principles Board Opinion No. 25 and related
         interpretations in accounting for its Plan. Accordingly, no
         compensation costs have been recognized for its stock option plan in
         the financial statements.

         The weighted average fair value of options granted was $2.53 and $2.06
         per share in 2002 and 2001, respectively. The weighted average fair
         value of options was estimated on the date of grant using the
         Black-Scholes option-pricing model with the following weighted-average
         assumptions: no dividend yield, expected volatility of 62% and 36% in
         2002 and 2001, respectively, risk-free interest rate of 4.21% and 4.78%
         in 2002 and 2001, respectively and expected lives of five to ten years
         in 2002 and 2001.

         Information pertaining to stock options outstanding at December 31,
         2002 is as follows:



                                                    OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                                     ----------------------------------------------------  -----------------------------
                                                           WEIGHTED           WEIGHTED                       WEIGHTED
                                                            AVERAGE           AVERAGE                        AVERAGE
                                          NUMBER           REMAINING          EXERCISE        NUMBER         EXERCISE
RANGE OF EXERCISE PRICES               OUTSTANDING      CONTRACTUAL LIFE       PRICE        EXERCISABLE       PRICE
                                       -----------      ----------------      --------      -----------      --------
                                                                                              
$6.37 - 7.56                             141,580           4.71 years           6.68          53,313           6.56
$9.46 - 17.38                            170,659           4.97 years           14.85         19,502           9.88
                                         -------                                              ------
Outstanding at end of year               312,239           4.85 years           11.15         72,815           7.44
                                         =======                                              ======


         Had compensation cost for the Bank's stock option plan been determined
         based on the fair values at the grant dates for awards under the plan
         consistent with the fair value method of SFAS No. 123, the Bank's net
         income and earnings per share for the years ended December 31, 2002 and
         2001 would have been reduced to the pro forma indicated below.



                           2002             2001           2000
                      --------------   -------------   -------------
                                              
Net Income:
   As reported        $   11,651,378      11,571,898      12,150,981
   Pro-forma              11,599,887      11,521,958      12,126,466

Earnings per share:
   As reported:
   Basic              $         1.10            1.09            1.32
   Diluted                      1.09            1.08            1.32

   Pro-forma:
   Basic              $         1.09            1.09            1.32
   Diluted                      1.08            1.08            1.32




(10)     EMPLOYEE BENEFIT PLANS

         The Bank has a 401(k) profit sharing plan. This plan is for the benefit
         of substantially all of its employees. The Bank contributed 4.3% of
         each participant's annual compensation in 2002, 2001 and 2000.
         Contributions for the years ended December 31, 2002, 2001 and 2000 were
         approximately $262,000, $285,000 and $247,000 respectively.

(11)     COMMITMENTS AND CONTINGENT LIABILITIES AND FINANCIAL INSTRUMENTS WITH
         OFF-BALANCE SHEET RISK

         There are various legal proceedings pending against the Bank. In the
         opinion of management, based upon the advice of counsel, liabilities
         arising from these proceedings, if any, will not materially affect the
         financial position of the Bank.

         The Bank leases premises for eight of its branches and head office
         under lease agreements that contain renewal options and escalation
         clauses which provide for the payment of taxes, insurance and certain
         other expenses by the Bank.

         Included in net occupancy expense and equipment expense are rental
         payments for premises and equipment of $1,697,147 in 2002, $1,629,571
         in 2001 and $1,723,267 in 2000. The following is a schedule by years of
         future minimum rental commitments, primarily representing noncancelable
         operating leases and a noncancelable sublease as of December 31, 2002:



                                                      MINIMUM            SUBLEASE RENTAL
                                                      RENTALS                INCOME
                                                    -----------          ---------------
                                                                   
Year ending December 31:
    2003                                            $ 1,645,609            $    218,832
    2004                                              1,626,082                 218,832
    2005                                              1,415,920                      --
    2006                                              1,207,483                      --
    2007                                              1,186,515                      --
    Later years                                       1,066,956                      --
                                                    -----------            ------------
                                                    $ 8,148,565            $    437,664
                                                    ===========            ============


       The Bank 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 in the form of loans or through standby letters of credit. Those
       instruments involve varying degrees and elements of credit risk in excess
       of the amount recognized in the balance sheet. The dollar amount related
       to such commitments reflects the extent of involvement the Bank has in
       particular classes of financial instruments.

       The Bank's exposure to credit loss in the event of nonperformance by the
       other party to the financial instrument for commitments to extend credit
       is represented by the contractual amount of those instruments. The Bank
       uses the same credit policies in making commitments and conditional
       obligations as it does for on-balance sheet instruments.

       Unless noted otherwise, the Bank does not require collateral or other
       security to support financial instruments with credit risk.

       Commitments to extend credit whose contract amounts represent the amount
       of credit risk include the following at December 31, 2002 and 2001:



                                             2002                        2001
                                   -------------------------   -------------------------
                                   OUTSTANDING   GUARANTEED    OUTSTANDING   GUARANTEED
                                     AMOUNT        AMOUNT        AMOUNT        AMOUNT
                                   -----------   -----------   -----------   -----------
                                                                 
Commitments to extend credit:
    Commercial loans               $92,454,540   $        --   $33,810,704   $        --
    Home equity line of credit       4,325,374            --     4,409,023            --
    Credit card loans and others     6,623,348            --     6,851,421            --
Standby letters of credit           19,575,312    19,575,312    12,096,276    12,096,276
Commercial letters of credit         5,404,357            --     5,547,866            --


         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 Bank evaluates each customer's creditworthiness on a
         case-by-case basis. The amount of collateral obtained if deemed
         necessary by the Bank upon extension of credit is based on management's
         credit evaluation of the borrower.

         The commitments can be either secured or unsecured and may also take
         the form of standby letters of credit and commercial letters of credit.
         Commercial letters of credit facilitate import trade. Standby letters
         of credit are conditional commitments



         issued by the Bank 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.

(12)     TRANSACTIONS WITH AFFILIATES

         The Bank had the following assets and liabilities at December 31
         resulting from transactions with Korea Exchange Bank.



                                                    2002                        2001
                                                 -----------                 -----------
                                                                       
Due from banks - demand                          $   264,633                 $   777,718
                                                 -----------                 -----------
Demand deposits, non-interest bearing            $ 3,515,539                 $ 2,445,054
                                                 -----------                 -----------


         At December 31, 2002 and 2001, loans to certain directors and officers
         amounted approximately $55,000 and $85,000, respectively. One director
         has a line of credit of zero and $1 million with the Bank with no
         outstanding amount at December 31, 2002 and 2001, respectively.

(13)     FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used to estimate the fair
         value of each class of financial instruments for which it is
         practicable to estimate that value.

         (a)      CASH AND SHORT-TERM INSTRUMENTS

                  For those short-term instruments whose maturity is less than
                  90 days, the carrying amount is assumed to be a reasonable
                  estimate of fair value.

         (b)      FEDERAL HOME LOAN BANK STOCK

                  The carrying amount is assumed to be a reasonable estimate of
                  fair value.

         (c)      SECURITIES

                  Fair values are based on quoted market prices or dealer
                  quotes. If a quoted market price is not available, fair value
                  is estimated using quoted market prices for similar
                  securities.

         (d)      LOANS

                  Fair value is estimated for portfolios of loans with similar
                  financial characteristics. Each loan portfolio was further
                  segmented into fixed and adjustable rate interest groups and
                  by performing and nonperforming categories.

                  The fair value of performing loans was calculated by
                  discounting scheduled cash flows through the estimated
                  maturity using estimated market discount rates that reflect
                  the credit and interest rate risk inherent in the loan.

                  Fair value for nonperforming loans was based on recent
                  external appraisals and related estimated cash flows
                  discounted using a rate commensurate with the risk associated
                  with the estimated cash flows. Assumptions regarding credit
                  risk, cash flows and discount rates are judgmentally
                  determined using available market information and specific
                  borrower information.

         (e)      DEPOSIT LIABILITIES

                  The fair value of demand deposits, savings accounts and
                  certain money market deposits is the amount payable on demand
                  at the reporting date. The fair value of fixed maturity
                  certificates of deposit is based on the discounted value of
                  contractual cash flows. The discount rate is estimated using
                  the rates currently offered for deposits of similar remaining
                  maturities.

         (f)      OTHER BORROWED FUNDS

                  Due to the short-term nature of these borrowings, the carrying
                  amount is assumed to be a reasonable estimate of fair value.


         (g)      COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND
                  COMMERCIAL LETTERS OF CREDIT

                  The fair value of commitments is estimated using the fees
                  currently charged to enter into similar agreements, taking
                  into account the remaining terms of the agreements and the
                  present creditworthiness of the counterparties. For fixed rate
                  loan commitments, fair value also considers the difference
                  between current levels of interest rates and the committed
                  rates. The fair value of letters of credit is based on fees
                  currently charged for similar agreements or on the estimated
                  cost to terminate them or otherwise settle the obligations
                  with the counterparties at the reporting date. The uncertainty
                  involving the attempt to determine the likelihood and the
                  timing of a commitment being drawn upon, along with the lack
                  of established markets, would not result in what the Bank
                  believes to be a meaningful estimate of fair value.

                  The fair value disclosed hereinafter does not reflect any
                  premium or discount that could 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 in amounts disclosed. The fair value estimates are
                  dependent upon subjective estimates of market conditions and
                  perceived risks of financial instruments at a point in time
                  and involve significant uncertainties resulting in variability
                  in estimates with changes in assumptions.

                  The estimated fair value of the Bank's financial instruments
                  at December 31, 2002 and 2001 is as follows (dollars in
                  thousands):



                                              2002                     2001
                                      ----------------------   ----------------------
                                      CARRYING       FAIR      CARRYING      FAIR
                                       AMOUNT        VALUE      AMOUNT       VALUE
                                      ---------   ----------   ---------   ----------
                                                               
Financial assets:
    Cash and short-term instruments   $  86,765   $   86,765   $  68,074   $   68,074
    Federal home loan bank stock          3,538        3,538       1,504        1,504
    Securities held-to-maturity          89,314       90,799          --           --
    Securities available-for-sale        64,701       64,701     139,662      139,662
    Loans, net                          674,258      684,215     562,887      568,289
    Accrued interest receivable           3,405        3,405       3,455        3,455

Financial liabilities:
    Deposits                            759,996      748,929     692,752      693,967
    Other borrowed funds                 70,000       72,906          --           --
    Accrued interest payable              3,140        3,140       4,684        4,684


(14)     REGULATORY MATTERS

         (a)      CAPITAL REQUIREMENTS

                  The Bank is subject to various regulatory capital requirements
                  administered by the federal banking agencies. Failure to meet
                  minimum capital requirements can initiate certain mandatory
                  and possibly additional discretionary actions by regulators
                  that, if undertaken, could have a direct material effect on
                  the Bank's financial statements. Under capital adequacy
                  guidelines and the regulatory framework for prompt corrective
                  action, the Bank must meet specific capital guidelines that
                  involve quantitative measures of the Bank's assets,
                  liabilities and certain off-balance sheet items as calculated
                  under regulatory accounting practices. The Bank's capital
                  amounts and classification are also subject to qualitative
                  judgments by the regulators about components, risk weightings
                  and other factors.

                  Quantitative measures established by regulation to ensure
                  capital adequacy require the Bank to maintain minimum amounts
                  and ratios (set forth in the table below) of total and Tier I
                  capital (as defined in the regulations) to risk-weighted
                  assets (as defined) and of Tier I capital (as defined) to
                  average assets (as defined). Management believes as of
                  December 31, 2002 that the Bank meets all capital adequacy
                  requirements to which it is subject.

                  The Bank is no longer considered as well capitalized as a
                  result of Consent Agreement made with Federal Deposit
                  Insurance Corporation (see other below). To be categorized as
                  well capitalized, the Bank must maintain minimum total
                  risk-based, Tier I risk-based, Tier I leverage ratios as set
                  forth in the table and not be subject to any regulatory order,
                  agreement or directive.

                  The Bank's actual capital amounts and ratios as of December
                  31, 2002 and 2001 are as follows (dollars in thousands):





                                                               2002
- -----------------------------------------------------------------------------------------------------------
                                                                                   TO BE WELL CAPITALIZED
                                                            FOR CAPITAL            UNDER PROMPT CORRECTIVE
                                       ACTUAL             ADEQUACY PURPOSE           ACTION PROVISIONS
                              --------------------    ------------------------    -------------------------
                                AMOUNT      RATIO      AMOUNT         RATIO        AMOUNT         RATIO
                              ----------    ------    ---------    -----------    ---------    ------------
                                                                            
Total capital (to risk-
    weighted assets)          $  108,689    15.95%    $  54,515    > or = 8.0%    $  68,144   > or = 10.0%
Tier I capital (to risk-
    weighted assets)             100,169    14.70        27,257    > or = 4.0        40,885    > or = 6.0
Tier I capital (to average
    assets)                      100,169    11.56        34,671    > or = 4.0        43,338    > or = 5.0
                              ==========    =====     =========    ==========     =========    ==========




                                                               2001
                          ---------------------------------------------------------------------------------
                                                                                   TO BE WELL CAPITALIZED
                                                            FOR CAPITAL           UNDER PROMPT CORRECTIVE
                                       ACTUAL             ADEQUACY PURPOSE           ACTION PROVISIONS
                              --------------------    ------------------------    -------------------------
                                AMOUNT      RATIO      AMOUNT         RATIO        AMOUNT         RATIO
                              ----------    ------    ---------    -----------    ---------    ------------
                                                                            
Total capital (to risk-
    weighted assets)          $   95,864    16.07%    $  47,723    > or = 8.0%    $  59,654   > or = 10.0%
Tier I capital (to risk-
    weighted assets)              88,384    14.82        23,855    > or = 4.0        35,783    > or = 6.0
Tier I capital (to average
    assets)                       88,384    10.77        32,813    > or = 4.0        41,016    > or = 5.0
                              ==========    =====     =========    ==========     =========    ==========


         (b)      FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT

                  The Federal Deposit Insurance Corporation Improvement Act
                  (FDICIA) was signed into law on December 19, 1991. FDICIA
                  establishes a new framework for the relationship between
                  insured depository institutions and their regulators.

                  FDICIA requires insured depository institutions to maintain
                  capital ratio thresholds. Regulators are required to take
                  prompt corrective actions to resolve the problems of any
                  institution failing to meet these minimum ratios. In addition
                  to the prompt corrective action requirements, FDICIA includes
                  significant changes to the legal and regulatory environment
                  for insured depository institutions, including reductions in
                  insurance coverage for certain kinds of deposits, increased
                  supervisions by the federal regulatory agencies, increased
                  reporting requirements for insured institutions and new
                  regulations concerning internal controls, accounting and
                  operations.

         (c)      OTHER

                  The Bank also is currently subject to a Consent Order issued
                  by the FDIC pursuant to Section 8(b)(1) of the Federal Deposit
                  Insurance Act, 12 U.S.C. Section 1818(b)(1) and which became
                  effective on April 14, 2002. The FDIC issued the ConsenT Order
                  as provided by the Consent Agreement that the Bank entered
                  into with the FDIC. The Consent Order requires the Bank to
                  take specific actions necessary to correct certain Bank
                  Secrecy Act compliance deficiencies including inadequate
                  training, internal controls and ineffective independent
                  testing of such controls. Even before the Consent Order became
                  effective, the Bank began taking proactive steps in 2001 to
                  improve its BSA compliance. For example, in late 2001, the
                  Bank implemented an enterprise-wide risk management
                  infrastructure, which includes a comprehensive compliance
                  program and training. This step was taken with the assistance
                  of a leading financial services consulting firm, The Secura
                  Group, whom the Bank retained in November 2001 to advise and
                  assist the Bank in its compliance efforts. In addition, the
                  Bank created a new senior executive position of Chief Risk
                  Officer and hired the CRO in May 2002 to enhance overall Risk
                  Management processes. Finally, to improve the overall
                  efficiency and effectiveness of BSA monitoring, the Bank
                  purchased a new automated BSA tracking/monitoring system which
                  was installed in 2002 and is in the process of implementation.
                  The Bank expects this system to be fully functional shortly,
                  which will satisfy one of the most critical requirements of
                  the Consent Order.



(15)     EARNINGS PER SHARE

         The following earnings per share as of December 31, 2002, 2001 and 2000
         has been restated for the 12% stock dividend in 2002 and 10% stock
         dividend in 2001.



                                                   INCOME           SHARES       PER SHARE
2002                                             (NUMERATOR)     (DENOMINATOR)    AMOUNT
- -------------------------------------------   ----------------   -------------   ---------
                                                                        
Basic EPS -
    Income available to common stockholders   $     11,651,378      10,616,017   $    1.10

Effect of Dilutive Securities -
    Options                                                 --          86,075       (0.01)
                                              ----------------   -------------   ---------
Diluted EPS -
    Income available to common stockholders   $     11,651,378      10,702,092   $    1.09
                                              ================   =============   =========




                                                   INCOME           SHARES       PER SHARE
2001                                             (NUMERATOR)     (DENOMINATOR)    AMOUNT
- -------------------------------------------   ----------------   -------------   ---------
                                                                        
Basic EPS -
    Income available to common stockholders   $     11,571,898      10,600,306   $    1.09

Effect of Dilutive Securities -
    Options                                                 --          95,000       (0.01)
                                              ----------------   -------------   ---------
Diluted EPS -
    Income available to common stockholders   $     11,571,898      10,695,306   $    1.08
                                              ================   =============   =========




                                                   INCOME           SHARES       PER SHARE
2000                                             (NUMERATOR)     (DENOMINATOR)    AMOUNT
- -------------------------------------------   ----------------   -------------   ---------
                                                                        
Basic EPS -
    Income available to common stockholders   $     12,150,981       9,180,807   $    1.32

Effect of Dilutive Securities -
    Options                                                 --           7,684          --
                                              ----------------   -------------   ---------
Diluted EPS -
    Income available to common stockholders   $     12,150,981       9,188,491   $    1.32
                                              ================   =============   =========


(16)     QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
     Summarized unaudited quarterly financial data follows:



                                                               THREE MONTHS ENDED
                                     ------------------------------------------------------------------------
                                         MARCH 31           JUNE 30         SEPTEMBER 30        DECEMBER 31
                                     ---------------    ---------------    ---------------    ---------------
                                                         (In thousands, except share amounts)
                                                                                  
2002
  Interest income                    $        10,872    $        10,982    $        12,056    $        12,468
  Net interest income                          7,914              8,076              8,329              8,748
  Provision for losses on loans                  100                100                200                700
  Net income before income taxes               4,299              5,326              4,128              5,302
  Net income                                   2,581              3,198              2,637              3,235
  Basic earnings per common share               0.24               0.30               0.25               0.30
  Diluted earnings per share                    0.24               0.30               0.25               0.30

2001
  Interest income                    $        14,678    $        14,591    $        13,924    $        12,083
  Net interest income                          8,215              8,136              8,643              8,079
  Provision for losses on loans                  100                250                600                350
  Net income before income taxes               5,289              4,607              4,646              3,741
  Net income                                   3,230              2,762              3,061              2,519
  Basic earnings per common share               0.34               0.29               0.32               0.27
  Diluted earnings per share                    0.34               0.29               0.32               0.26



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         At its Board of Directors meeting on March 28, 2002, the Board of
Directors terminated the services of KPMG LLP ("KPMG"). At the same meeting, the
Board of Directors selected the accounting firm of PriceWaterhouseCoopers
LLP("PwC") as independent auditors for the remainder of the Bank's 2002 fiscal
year. The determination to replace KPMG was recommended by the audit committee
and approved by the full board of directors of the Bank.

         KPMG audited the consolidated financial statements for the Bank for the
years ended December 31, 2001 and 2000. KPMG's report on the financial
statements for the last two fiscal years of the Bank did not contain an adverse
opinion or disclaimer of opinion, nor were such reports qualified or modified as
to uncertainty, audit scope or accounting principles.

         During the two fiscal years ended December 31, 2001 and 2000 and the
subsequent interim period January 1, 2002 through March 28, 2002, there were no
disagreements with KPMG and the Bank on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports.

         The Bank filed a Report on Form 8-K concerning the change in
accountants dated March 28, 2002. The Bank requested that KPMG review the
disclosure in the Report on Form 8-K, and KPMG has been given the opportunity to
furnish the Bank with a letter addressed to the Federal Deposit Insurance
Corporation containing any new information, clarification of the Bank's
expression of its views, or the respects in which it does not agree with the
statements made by the Bank herein. Such letter was filed as an exhibit to the
Form 8-K.



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                  The following table sets forth certain information as of March
24, 2003, with respect to (i) each of the Bank's directors and executive
officers, and (ii) the directors and executive officers of the Bank as a group:



                                                                                           COMMON STOCK
                                                                                       BENEFICIALLY OWNED ON
                                                                                          MARCH 24, 2003(1)
                                                                 YEAR FIRST    -----------------------------------------
                                                                 ELECTED OR                   VESTED        PERCENTAGE
   NAME AND OFFICES           PRINCIPAL OCCUPATION               APPOINTED      NUMBER        OPTION        OF SHARES
    HELD WITH BANK          FOR THE PAST FIVE YEARS      AGE      DIRECTOR     OF SHARES     SHARES(2)    OUTSTANDING(3)
    --------------          -----------------------      ---      --------     ---------     ---------    --------------
                                                                                        
Allan E. Dalshaug         Retired                         71      1999         26,985          4,928           *
Chairman of the Board     (formerly Banker)(4)                  (Chairman
                                                                since 2000)
Woon Seok Hyun            President and                   56      1997(7)           0          7,392           *
President,                Chief Executive Officer,
Chief Executive Officer   Pacific Union Bank(6)
and Director(5)

Yoon Soo Kim              Executive Vice President        55      2000              0          4,928           *
Director                  and Managing Director,
                          Korea Exchange Bank,
                          Regional Headquarters
                          for the Americas(8)

Yong Koo Kim              General Manager,                49      2002              0              0           *
Director                  Korea Exchange Bank,
                          Los Angeles Agency(9)

Oh Hoon Kwon              Senior Vice President           45      2002              0              0           *
Senior Vice President,    and Chief Operating Officer,
Chief Operating Officer   Pacific Union Bank(10)
and Director


- ----------------------------
* Less than one percent (1%).

(1) Except as otherwise noted, may include shares held by such person's spouse
(except where legally separated) and minor children, and by any other relative
of such person who has the same home; shares held in "street name" for the
benefit of such person; shares held by a family or retirement trust as to which
such person is a trustee and primary beneficiary with sole voting and investment
power (or shared power with a spouse); or shares held in an Individual
Retirement Account or pension plan as to which such person (and/or his spouse)
is the sole beneficiary and has pass-through voting rights and investment power.


(2) Represents option shares which are vested or will vest within 60 days of
March 24, 2003 pursuant to the Bank's Stock Option Plan. (See "Stock Options"
and "Compensation of Directors" herein.)


(3) This percentage is based on the total number of shares of the Bank's Common
Stock outstanding, plus the number of option shares for the applicable
individual or group which are vested or will vest within 60 days of March 24,
2003 pursuant to the Bank's Stock Option Plan. (See "Stock Options" and
"Compensation of Directors" herein.)

(4) Mr. Dalshaug retired in July 1998 and most recently served as Chairman of
the Board and Chief Executive Officer of Sterling Bank in Los Angeles, a
specialist commercial bank of which he was also a founding director and
promoter, from 1980 until its sale in 1998.

(5) Mr. Hyun has announced his intention to resign as President, Chief Executive
Officer and a Director effective May 22, 2003.

(6) Mr. Hyun has served as President and Chief Executive Officer of the Bank
since May 15, 2001. Previously, he served as Executive Vice President of KEB's
Regional Headquarters for Japan and General Manager of KEB's Tokyo branch since
January 2000; and as General Manager of KEB's Los Angeles Agency from February
1997 to March 1999.

(7) Mr. Hyun served as a director of the Bank from March 1997 to April 1999, and
has served as a director again since May 2001.

(8) Dr. Yoon Soo Kim has held this position with KEB since September 2000.
Previously, he served as Managing Director of KEB's Treasury Unit from May to
September 2000; as General Manager of KEB's International Banking Division from
March 1999 to May 2000; and as General Manager of KEB's Capital Market Division
from January 1998 to March 1999.

(9) Mr. Yong Koo Kim has served as General Manager of KEB's Los Angeles Agency
since March 12, 2002. Previously, he served in various capacities at KEB since
1978, including General Manager of the Do Gok Ro Branch From August 1999 to
February 2002; as Deputy General Manager, Planning and Coordination Division
from September 1998 to August 1999; and as Deputy General Manager, Loan Division
from January 1998 to September 1998.

(10) Mr. Kwon has served as Senior Vice President, Chief Operating Officer and a
director of the Bank since March 15, 2002. Previously, he served in various
capacities at KEB since 1981, including most recently as Deputy General Manager
in charge of administration of overseas offices for KEB's International Banking
Division since February 2000; as General Manager for Retail Banking at the
Chamsil Station Branch from March 1999 to February 2000; and as Manager,
Secretariat from February 1997 to March 1999.

                              (Table and footnotes continued on following page.)




                                                                                                 COMMON STOCK
                                                                                            BENEFICIALLY OWNED ON
                                                                                              MARCH 24, 2003(1)
                                                                         YEAR FIRST  ------------------------------------
                                                                         ELECTED OR               VESTED     PERCENTAGE
      NAME AND OFFICES                PRINCIPAL OCCUPATION                APPOINTED    NUMBER     OPTION      OF SHARES
       HELD WITH BANK               FOR THE PAST FIVE YEARS       AGE     DIRECTOR   OF SHARES  SHARES(2)  OUTSTANDING(3)
       --------------           -------------------------------   ---     --------   ---------  ---------  --------------
                                                                                         
Donald D. Byun                  President, OTO Sportswear, Inc.    51       2000       61,600     4,928          *
Director                        (Manufacturing and Import
                                Company)

Sun Kee Kim                     Professor of Economics             69       2002            0         0          *
Director                        and Statistics, California State
                                University, Los Angeles

Kraig A. Kupiec                 Managing Member,                   38       2000            0     4,928          *
Director                        Finance Operations,
                                Shoreline Trading Group LLC
                                (Securities Broker-Dealer)(11)

David B. Warner                 Financial Advisor(13)              56       2002            0         0          *
Director(12)

Dianne Kim                      Senior Vice President              41        n/a        3,903     1,626          *
Senior Vice President           and Chief Financial Officer,
and Chief Financial Officer     Pacific Union Bank(14)

Dong Il Kim                     Senior Vice President              49        n/a          616     1,626          *
Senior Vice President           and Chief Credit Officer,
and Chief Credit Officer        Pacific Union Bank(15)

Owen C. Clayburgh               Senior Vice President              38        n/a            0         0          *
Senior Vice President           and Chief Risk Officer,
and Chief Risk Officer          Pacific Union Bank(16)

Directors and                                                                          98,032    35,284          *
Executive Officers as a Group
(13 persons) (17)


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Based solely upon a review of Forms F-7, F-8 and F-8A and amendments
thereto furnished to the Bank during and with respect to its 2002 fiscal year,
no director, executive officer or beneficial owner of 10% or more of the Bank's
Common Stock failed to file, on a timely basis, reports required for 2002 by
Section 16(a) of the Securities Exchange Act of 1934, as amended, except Mr.
Dalshaug, who inadvertently failed to timely file a Form F-8 with respect to two
small transactions in April 2002.

- -----------------

(Certain footnotes appear on previous page.)

(11) Mr. Kupiec also serves as Financial Officer of KWK Management LLC, a
California registered Investment Advisor located in Los Angeles.

(12) Mr. Warner has been selected by the Board of Directors to serve as Interim
Chief Executive Officer effective May 22, 2003, subject to non-disapproval by
the FDIC.

(13) Mr. Warner has been a self-employed financial advisor consulting with
various entities since October 2001. Previously, he served as Deputy President
and Chief Financial Officer of Seoul Bank in Seoul, Korea from July 2000 to
September 2001; as Advisor/Director of the Korea Development Bank from December
1998 to June 2000; and as Senior Vice President for ChinaVest Limited in Hong
Kong from 1994 to July 1998.

(14) Ms. Kim was appointed Senior Vice President and Chief Financial Officer of
the Bank in May 2000. From 1996 until May 2000, she served as Vice President and
Controller of Cathay Bank in Los Angeles.

(15) Mr. Dong Il Kim was appointed Senior Vice President and Chief Credit
Officer of the Bank in November 2000. Previously, he served as Senior Vice
President, Senior Loan Officer and Manager of the Bank's Special Assets
Department from August 2000 to November 2000; as Senior Vice President and
Senior Loan Officer from May 2000 to July 2000; as Vice President and Senior
Loan Officer from January 2000 to May 2000; as Vice President and Manager of the
Bank's Olympic Branch from 1997 to January 2000.

(16) Mr. Clayburgh was appointed Senior Vice President and Chief Risk Officer of
the Bank in May 2002. Previously, he served as Vice President and Risk Manager
of Pacific Century Bank in Signal Hill, California from September 2001 to
December 2001; and as First Vice President and Risk Manager of that bank from
May 1998 to September 2001.

(17) Includes one director who resigned on April 17, 2003.



ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth certain summary compensation information
with respect to the Bank's Chief Executive Officer and only other executive
officers of the Bank as of December 31, 2002, whose total salary and bonus for
the fiscal year ended December 31, 2002, exceeded $100,000 (the "Named Executive
Officers"):

                           SUMMARY COMPENSATION TABLE




                                                                                  LONG TERM
                                                                                 COMPENSATION
                                                                                 ------------
                                                                                STOCK OPTIONS
                                                 ANNUAL COMPENSATION               GRANTED
                                         -------------------------------------     (NUMBER           ALL OTHER
NAME AND PRINCIPAL POSITION   YEAR       SALARY         BONUS        OTHER      OF SHARES)(18)   COMPENSATION(19)
- ---------------------------   ----       ------         -----        -----      --------------   ----------------
                                                                               
Woon Seok Hyun                2002   $149,852 (20)   $     0       $44,250(22)           0           $2,329
President and                 2001     82,967 (21)         0        25,375(22)      36,966                0
Chief Executive Officer(5)
Dianne Kim                    2002    113,515 (20)    14,533(24)         0           2,200            5,297
Senior Vice President         2001    109,144 (20)    14,050             0               0            1,756
and Chief Financial Officer   2000     66,657 (23)    15,000             0           4,066                0
Dong Il Kim                   2002    101,070 (20)    13,458(24)         0           2,200            4,662
Senior Vice President         2001     96,118 (20)    12,300             0               0            3,958
and Chief Credit Officer      2000     80,708 (20)    11,350             0           4,066            3,576


STOCK OPTION PLAN

         The Bank's 2000 Stock Option Plan (the "Plan"), intended to advance the
interests of the Bank by encouraging stock ownership on the part of key
employees, was adopted by the Bank's then sole shareholder on May 12, 2000. The
Plan provides for the issuance of both "incentive" and "non-qualified" stock
options to full-time salaried officers and employees of the Bank and of
"non-qualified" stock options to non-employee directors of the Bank. All options
are granted at an exercise price of not less than 100% of the fair market value
of the stock on the date of grant.25 Each option expires not later than ten (10)
years from the date the option was granted. Options are exercisable in
installments as provided in individual stock option agreements; provided,
however, that if an optionee fails to exercise his or her rights under the
options within the year such rights arise, the optionee may accumulate them and
exercise the same at any time thereafter during the term of the option. In
addition, in the event of a "Terminating Event," i.e., a merger or consolidation
of the Bank as a result of which the Bank will not be the surviving corporation,
a sale of substantially all of the Bank's assets, or a change in ownership of at
least 25% of the Bank's stock, all outstanding options under the Plan shall
become exercisable in full (subject to certain notification requirements), and
shall terminate if not exercised within a specified period of time, unless
provision is made in connection with the Terminating Event for assumption of
such options, or substitution of new options covering stock of a successor
corporation. As of December 31, 2002, the Bank had options

- ------------------------
(Certain footnotes appear on page 64.)

(18) As adjusted to reflect stock splits or dividends declared since the grant
date of options (if applicable).

(19) Consists entirely of employer contributions to these individuals' accounts
pursuant to the Bank's 401(k) Plan. The 401(k) Plan permits all participants to
contribute up to 15% or $30,000 of their annual salary (whichever is less) on a
pre-tax basis, which contributions vest immediately when made. Employer
contributions are made in the amount of 4.3% of annual compensation, up to a
maximum of $6,450, and become vested over a period of six years at the rate of
20% per year for third and fourth years of service, and 30% per year for the
fifth and sixth years of service.

(20) Includes portions of these individuals' salaries which were deferred
pursuant to the Bank's 401(k) Plan.

(21) Represents salary paid from May 15, 2001 (commencement of Mr. Hyun's
employment) through December 31, 2001.

(22) Consists of the reported taxable value of the use of both a Bank-owned
automobile ($8,250 and $2,875 in 2002 and 2001, respectively) and a personal
residence ($36,000 and $22,500 in 2002 and 2001, respectively).

(23) Represents salary paid from May 15, 2000 (commencement of Ms. Kim's
employment) through December 31, 2000.

(24) Consists of bonuses paid in 2003 based on 2002 performance.

(25) Exercise price per share is equivalent to market price per share on the
date of grant, as determined by the Board of Directors of the Bank, based upon
trades in the Bank's Common Stock known to the Bank and opening and closing
prices quoted on the Nasdaq National Market concerning the Bank's Common Stock.



outstanding to purchase a total of 312,239 shares(18) of its Common Stock under
the Plan, with an average exercise price of $10.83 per share(18) with respect to
all such options. As of that same date, the fair market value of the Bank's
common stock was $11.51 per share.

         The following table furnishes certain information regarding stock
options granted to the Named Executive Officers during 2002:



                                     PERCENT OF TOTAL
                                    OPTIONS GRANTED TO
                     NUMBER OF       EMPLOYEES DURING    EXERCISE OR   EXPIRATION     FAIR
     NAME         OPTIONS GRANTED         PERIOD         BASE PRICE       DATE      VALUE(26)
     ----         ---------------         ------         ----------       ----      ---------
                                                                     
Woon Seok Hyun            0                n/a                n/a          n/a         n/a
Dianne Kim            2,200(27)           1.80%             $17.38       9/28/07     $7,128
Dong Il Kim           2,200(27)           1.80%              17.38       9/28/07      7,128


         No options were exercised by the Named Executive Officers during 2002.
The following information is furnished with respect to stock options held by the
Named Executive Officers at December 31, 2002:



                             NUMBER OF                 VALUE OF UNEXERCISED
                       UNEXERCISED OPTIONS             IN-THE-MONEY OPTIONS
                     AT DECEMBER 31, 2002(28)        AT DECEMBER 31, 2002(29)
                     --------------------            --------------------
     NAME         EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
     ----         -----------    -------------    -----------    -------------
                                                     
Woon Seok Hyun        7,392          29,568          $9,942         $39,771
Dianne Kim            1,626           4,640           8,193          23,380
Dong Il Kim           1,626           4,640           8,193          23,380


COMPENSATION OF DIRECTORS

         Directors of the Bank who are not employees of either the Bank or KEB
("outside directors") received $1,500 per month, and the Chairman received
$2,500 per month, for their service on the Board of Directors during 2002, plus
$700 for attendance at the organizational meeting of the Board of Directors.
These outside directors also received a year-end bonus amounting to one extra
month of their regular fees. Such directors also received $500 per meeting for
attendance at Loan Committee meetings ($250 if by teleconference), and $300 per
meeting for Audit, Compensation, CRA, Executive and Strategic Committee meetings
($150 if by teleconference), except for the Chairman of the Audit and Strategic
Committees who received $500 per Audit and Strategic Committee meeting ($250 if
by teleconference). In addition, during 2002 the Bank paid a total of $26,275 to
Allan E. Dalshaug, Chairman of the Board, on an hourly compensation basis, for
assisting management in constructing a strategic plan.

         During 2002 directors Sun Kee Kim, Yong Koo Kim and David B. Warner
were each granted a stock option to purchase 10,000 shares of common stock, and
Oh Hoon Kwon was granted a stock option to purchase 15,000 shares of common
stock, all at exercise prices of $17.38 per share, expiring in June 2012. All of
such options become exercisable at the rate of 20% per year commencing one year
from the date of grant. No stock options were exercised by any current directors
during 2002. As of December 31, 2002 directors Sun Kee Kim, Yong Koo Kim, Oh
Hoon Kwon and David B. Warner held the outstanding options described in the
first sentence of this paragraph, none of which were exercisable; and directors
Allan E. Dalshaug, Donald D. Byun, Kraig A. Kupiec, and Yoon Soo Kim held
outstanding stock options to purchase 12,320 shares(28) each of Common Stock,
all with expiration dates in 2010, at exercise prices of $7.56 per share(28)
($6.37 per share(28) in the case of Mr. Dalshaug). As of that same date, the
fair market value of the Bank's Common Stock was $11.51 per share. As of
December 31, 2002, all of the options to the four directors described in the
preceding sentence were exercisable as to forty percent (40%) of such shares.
Information concerning stock options held by directors who are also Named
Executive Officers is set forth above under "Stock Options."

- -------------------------
(26) The fair value of options was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield, expected volatility of 62%, risk-free interest
rate of 4.21% and expected life of five years.

(27) These options vest at the rate of 20% per year commencing one year from the
date of grant.

(28) As adjusted to reflect any stock splits or dividends declared since the
grant date of options (if applicable).

(29) Represents the excess of the aggregate fair market value over the aggregate
exercise price of the shares at December 31, 2002.



PERFORMANCE GRAPH

         The graph on the following page compares the yearly percentage change
in the cumulative total shareholders' return on the Bank's stock with the
cumulative total return of (i) the Nasdaq market index and (ii) an index
comprised of banks and bank holding companies located throughout the United
States with total assets of between $500 million and $1 billion. The latter peer
- -group index was compiled by SNL Securities LP of Charlottesville, Virginia. The
Bank reasonably believes that the members of the second group listed above
constitute peer issuers for the period from August 1, 2000 (conclusion of the
Bank's initial public offering) through December 31, 2002. The graph assumes an
initial investment of $100 and reinvestment of dividends. The graph is not
necessarily indicative of future price performance.

                            TOTAL RETURN PERFORMANCE

                        [TOTAL RETURN PERFORMANCE GRAPH]



                                                          PERIOD ENDING
                             ----------------------------------------------------------------------
        INDEX                08/01/00    12/31/00     06/30/01    12/31/01     06/30/02    12/31/02
        -----                --------    --------     --------    --------     --------    --------
                                                                         
Pacific Union Bank            100.00      124.19       170.32      149.03       277.88      182.97
NASDAQ - Total US*            100.00       66.65        58.62       52.88        39.94       36.55
SNL $500M-$1B Bank Index      100.00      107.25       132.80      139.14       178.57      177.65


* Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2003. Used with permission. All rights
reserved.

BOARD OF DIRECTORS' COMPENSATION COMMITTEE REPORT

         The Board of Directors' Compensation Committee is responsible for
administering the compensation program for the Senior Executive Officers of the
Bank (Chief Executive Officer, Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Chief Credit Officer, and Chief Risk Officer).
The Committee also serves as the Stock Option Committee, administering the 2000
Stock Option Plan for participants who are neither directors nor executive
officers.

         The Compensation Committee reviews compensation of the Senior Executive
Officers of the Bank and ensures that their compensation is linked to the
maximum extent practicable to the financial performance of the Bank and the
achievement of goals established by the Board. The Compensation Committee (or
the Board of Directors) also reviews and approves any contracts of employment
for the Senior Executive Officers.



         The Committee is required annually, or on whatever basis it deems
satisfactory, to review the performance of all Senior Executive Officers based
on performance evaluations prepared by management. Such reviews take into
account the Bank's profitability, growth, and asset quality.

KOREA EXCHANGE BANK OFFICERS ON ASSIGNMENT WITH PACIFIC UNION BANK

         The Bank's majority shareholder, KEB, typically recommends highly
experienced officers from its organization to serve as Pacific Union Bank's top
management, on assignments of typically two to three year duration. Following
the completion of their assignment, such officers (other than the CEO, who is
usually a retired officer of KEB) return to KEB.

         Of the six Senior Executive Officers who served during 2002, three
(counting the current and former Chief Operating Officer as one) are current or
retired KEB officers on such assignments. In 2002, they were Woon Seok Hyun,
President and Chief Executive Officer who has served from May 15, 2001 to the
present; Moo Yeul Shin, Executive Vice President (who resigned as of February
15, 2002 and whose position was eliminated after his resignation); Dong Hwan
Heo, Senior Vice President and Chief Operating Officer (who resigned as of March
15, 2002), and his successor, Oh Hoon Kwon, Senior Vice President and Chief
Operating Officer.

         Under the assignment arrangement, the three KEB officers were
compensated based on criteria established by KEB for its personnel in the United
States. Compensation for these officers was determined by KEB.

         The Compensation Committee recognizes that the compensation of KEB
officers on assignment with Pacific Union Bank will continue to be based on
factors established by or affecting KEB. Thus, disparity may exist between their
rate of compensation and those of comparable local competitive bank executive
officers.

OTHER SENIOR EXECUTIVE OFFICERS

         The Compensation Committee has reviewed compensation levels of the
non-KEB Senior Executive Officers and has determined that they are competitive.
Moreover, the Compensation Committee has reviewed and determined that their
year-end incentive bonuses were appropriately based on their individual
performances as well as the Bank's overall financial performance.

         As discussed previously, the Chief Executive Officer, Woon Seok Hyun is
a retired Korea Exchange Bank officer who was appointed by the Board based on
the recommendation of KEB. His compensation was set by KEB under criteria
discussed previously. Consequently, the Board of Directors established no other
factors or criteria upon which their compensation was based, and accepted the
principles followed by KEB. However, the Compensation Committee did review his
compensation and determined, based on comparison to executive compensation being
paid by other comparable banks, that the Bank's Chief Executive Officer
compensation appears to be somewhat below market. The Committee will continue to
discuss with KEB ways to make the Chief Executive Officer compensation more
competitive with local Chief Executive Officer compensation levels, and will
continue to review short term as well as long term bench markings for Chief
Executive Officer compensation. Mr. Hyun has recently announced his intention to
resign as President and Chief Executive Officer effective May 22, 2003, and the
Board of Directors has formed a Search Committee to locate a qualified
replacement for Mr. Hyun with extensive experience in American community
banking. Until the Search Committee finds Mr. Hyun's replacement, one of the
independent directors, Mr. David Warner, has been selected to serve as the
Interim Chief Executive Officer subject to non-disapproval by the FDIC.

INCENTIVE-BASED COMPENSATION

         In order to (i) provide an additional incentive for the Bank's officers
and employees to contribute to the Bank's success, (ii) encourage their
increased stock ownership in the Bank, and (iii) enable the Bank to be
competitive in the industry with respect to compensation packages, the Board of
Directors adopted a Stock Option Plan in 2000. Details concerning the Stock
Option Plan and options granted thereunder to the Named Executive Officers are
set forth above under "Stock Options."

                             Compensation Committee:

                         Charles C. Kwak, Chairman (30)
                                Allan E. Dalshaug
                                  Yoon Soo Kim

COMPENSATION COMMITTEE INTERLOCKS

         The Compensation Committee is currently composed of three directors,
none of whom is a current or former employee of the Bank or any subsidiary.
However, Dr. Yoon Soo Kim is currently an officer and employee of KEB, but not
of the Bank. No other members of the Committee have had any employment
relationship with KEB within the past 20 years.

- ------------------------
(30) Mr. Kwak resigned on April 17, 2003 and was replaced by Mr. Donald D. Byun.
As the other two members of the Compensation Committee will not be standing for
re-election to the Board of Directors, their replacements will be appointed at
the organizational meeting of the Bank's Board of Directors (immediately
following the Annual Meeting of Shareholders), at which meeting committee
assignments are made every year.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Management knows of no person who owns beneficially more than five
percent (5%) of the outstanding Common Stock of the Bank, except for Korea
Exchange Bank ("KEB") and Wellington Management Company, LLP ("Wellington"). The
following table furnishes information, as of March 24, 2003, regarding these
shareholders:



                          NAME AND ADDRESS               AMOUNT AND NATURE OF      PERCENT
TITLE OF CLASS          OF BENEFICIAL OWNER              BENEFICIAL OWNERSHIP     OF CLASS
- --------------          -------------------              --------------------     --------
                                                                         
Common Stock      Korea Exchange Bank                           6,624,052          62.36%
                  181 Ulchiro 2-ga Chung-gu
                  Seoul, Korea

Common Stock      Wellington Management Company, LLP              718,392(31)       6.76%
                  75 State Street
                  Boston, Massachusetts 02109


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Certain of the executive officers, directors and principal shareholders
of the Bank and the companies with which they are associated have been customers
of, and have had banking transactions with, the Bank in the ordinary course of
the Bank's business since January 1, 2002, and the Bank expects to continue to
have such banking transactions in the future. All loans and commitments to lend
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of similar creditworthiness, and in
the opinion of Management of the Bank, did not involve more than the normal risk
of repayment or present any other unfavorable features.

ITEM 14. CONTROLS AND PROCEDURES

         (a) Evaluation of Disclosure Controls and Procedures

                  The Bank's Chief Executive Officer and its Chief Financial
Officer, after evaluating the effectiveness of the Bank's disclosure controls
and procedures as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a
date within 90 days of the filing date of this report (the "Evaluation Date")
have concluded that as of the Evaluation Date, the Bank's disclosure controls
and procedures were adequate and effective to ensure that material information
relating to the Bank and its consolidated subsidiaries would be made known to
them by others within those entities, particularly during the period in which
this report was being prepared. Disclosure controls and procedures are designed
to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

         (b) Changes in Internal Controls

                  There were no significant changes in the Bank's internal
controls or in other factors that could significantly affect the Bank's internal
controls subsequent to the Evaluation Date, nor any significant deficiencies or
material weaknesses in such controls requiring corrective actions. As a result,
no corrective actions were taken.

- ----------------------
(31)Represents shares reported on a Schedule 13G by Wellington, an investment
adviser as defined in applicable SEC rules. Clients of Wellington have the right
to receive, or the power to direct the receipt of, dividends from, or the
proceeds from, the sale of the stock, but none of such clients is known to have
a beneficial ownership interest in more than 5% of the Bank's Common Stock.
Wellington has shared dispositive power with respect to all 718,392 shares and
shared voting power with respect to 138,361 of such shares.



                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)      EXHIBITS

         See Index to Exhibits on page 75 herein. The Exhibits listed in
accompanying Index to Exhibits are filed as part of this report.

(b)      FINANCIAL STATEMENT SCHEDULES

         Schedules to the financial statements are omitted because the required
information is applicable or the information is presented in the Bank's
financial statements or related notes.

(c)      REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during last quarter of the Bank's
fiscal year ended December 31, 2002.



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

Dated: April 17, 2003              PACIFIC UNION BANK,
                                   a California corporation

                                   By:   /s/ Diane Kim
                                         -------------------------
                                         Dianne Kim
                                         Senior Vice President
                                         and Chief Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



      SIGNATURE                         TITLE                        DATE
                                                         
/s/ Allen E. Dalshaug       Chairman of the Board              April 17, 2003
- ----------------------
Allan E. Dalshaug

/s/ Woon Seok Hyun          President, Chief Executive         April 17, 2003
- -------------------           Officer and Director
Woon Seok Hyun

/s/ Oh Hoon Kwon            Senior Vice President, Chief       April 17, 2003
- ----------------            Operating Officer and Director
Oh Hoon Kwon

/s/ Donald Byun             Director                           April 17, 2003
- ----------------
Donald Byun

/s/ Yong Koo Kim            Director                           April 17, 2003
- ----------------
Yong Koo Kim

/s/ Yoon Soo Kim            Director                           April 17, 2003
- ----------------
Yoon Soo Kim

/s/ Kraig Kupiec            Director                           April 17, 2003
- ----------------
Kraig Kupiec

/s/ Sun Kee Kim             Director                           April 17, 2003
- ---------------
Sun Kee Kim

/s/ David Warner Jr.        Director                           April 17, 2003
- --------------------
David Warner Jr.

/s/ Dianne Kim              Senior Vice President              April 17, 2003
- --------------              and Chief Financial Officer
Dianne Kim




                                INDEX TO EXHIBITS


 EXHIBIT TABLE                                                                                   EXHIBIT TABLE
REFERENCE NUMBER                                       ITEM                                         NUMBER
- ----------------                                       ----                                         ------
                                                                                           
      3.1              Articles of Incorporation, as Amended(1).......................

      3.2              2002 Amendment to Articles of Incorporation(2).................

      3.3              Bylaws, as Amended(1)..........................................

      3.4              2001 Amendment to Bylaws(3)....................................

      4.1              Specimen of Common Stock Certificate(1)........................

      10.1             2000 Stock Option Plan(1)......................................

      10.2             401(k) Plan(3).................................................

      10.3             Lease for Corporate Headquarters(1)............................

      10.4             Lease for Western Branch Office(1).............................

      10.5             Lease for Wilshire Branch Office(1)............................

      10.6             Lease for Downtown Branch Office(1)............................

      10.7             Lease for Van Nuys Branch Office(1)............................

      10.8             Lease for Torrance Branch Office(1)............................

      10.9             Lease for Rowland Heights Branch Office(1).....................

      11.1             Statement Regarding Computation of Earnings Per Share(4).......

      12.1             Subsidiary of Registrant(1)....................................

      99.1             Certification of Chief Executive Officer and Chief Financial Officer


- -----------------------
(1)Incorporated by reference to the Exhibits to the Bank's Form 10 Registration
Statement, as filed with the FDIC on June 12, 2000.

(2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed
with FDIC on April 1, 2003.

(3) Incorporated by reference to the Exhibits to the Bank's Form 10K/A, as filed
with the FDIC on April 20, 2001.

(4) The information required by this exhibit is incorporated herein by reference
from Note 15 of the Bank's Financial Statements included herein.

EX-99.2

                                                                    EXHIBIT 99.2

================================================================================

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

- --------------------------------------------------------------------------------

                                    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, 2003

                          FDIC Certificate Number 21765

                               PACIFIC UNION BANK
             (Exact name of registrant as specified in its charter)

                CALIFORNIA                             95-2888370

     State or other jurisdiction of         I.R.S. Employer Identification
      incorporation or organization                     Number

                            3530 WILSHIRE BLVD. #1800
                          LOS ANGELES, CALIFORNIA 90010
                 Address of principal executive offices      Zip Code

                                 (213) 385-0909
               Registrant's telephone number, including area code

 (Former name, former address and former fiscal year, if changed since last
                            report): Not applicable

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                    Yes     X                 No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                                    YES         [ ]             NO

         Common stock, $6.00 par value, 10,652,452 shares outstanding as of May
9, 2003.

================================================================================



                               PACIFIC UNION BANK

                                TABLE OF CONTENTS



                                                                                        Page No.
                                                                                     
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements (Unaudited)

                  Balance Sheets  -
                           March 31, 2003 and December 31, 2002

                  Statements of Operations  -
                           Three months ended March 31, 2003 and 2002

                  Statements of Cash Flows  -
                           Three months ended March 31, 2003 and 2002

                  Notes to Financial Statements

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

         Item 3.  Quantitative and Qualitative Disclosure About Market Risk

         Item 4.  Controls and Procedures

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities

         Item 3.  Defaults upon Senior Securities

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

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K

         Signatures

         Certifications




                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               PACIFIC UNION BANK
                                 Balance Sheets
                   As of March 31, 2003 and December 31, 2002




                                                                                  (Unaudited)            (Audited)
                                                                                 MARCH 31, 2003      DECEMBER 31,2002
                                                                               ----------------      ----------------
                                                                                               
                        ASSETS
Cash and due from banks - demand                                               $     30,993,172      $     24,054,519
Federal funds sold                                                                    8,200,000            62,500,000
Due from banks - interest-bearing                                                       230,367               210,654
Federal Home Loan Bank Stock                                                          3,584,800             3,537,800
Securities held-to-maturity, at amortized cost (fair value of
         $77,403,704 at March 31, 2003 and $90,798,966 at December
         31, 2002)                                                                   76,164,366            89,313,683
Securities available-for-sale, at fair value                                         79,489,227            64,701,421
Loans receivable                                                                    732,079,225           683,131,191
      Less allowance for loan losses                                                 (9,304,331)           (8,872,995)
                                                                               ----------------      ----------------
              Net loans receivable                                                  722,774,894           674,258,196
                                                                               ----------------      ----------------
Customers' acceptance liabilities                                                     1,147,762               657,760
Bank premises and equipment, net                                                      6,320,172             6,610,142
Accrued interest receivable                                                           3,280,869             3,404,574
Deferred tax assets                                                                   4,340,182             4,663,046
Income taxes receivable                                                               1,116,038             1,116,038
Other assets                                                                          2,587,758             1,967,404
                                                                               ----------------      ----------------
      Total  assets                                                            $    940,229,607      $    936,995,237
                                                                               ================      ================

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
      Demand, non-interest-bearing                                             $    240,025,932      $    223,377,195
      Demand, interest-bearing                                                        7,624,268             7,602,024
      Money market and savings                                                      146,995,051           170,486,917
      Time certificates of deposit:
              Less than $100,000                                                     97,375,927            99,876,831
              $100,000 or more                                                      267,719,630           258,652,585
                                                                               ----------------      ----------------
      Total deposits                                                                759,740,808           759,995,552

Other borrowed funds                                                                 70,000,000            70,000,000
Acceptance liabilities                                                                1,147,762               657,760
Accrued interest payable                                                              3,106,403             3,140,064
Other liabilities                                                                     2,802,243             2,325,902
                                                                               ----------------      ----------------
      Total liabilities                                                             836,797,216           836,119,278
                                                                               ----------------      ----------------
Stockholders' equity:
      Common stock, $6 par value.  Authorized 30,000,000 shares;
              issued and outstanding 10,621,554 shares at March 31,
              2003 and December 31, 2002                                             63,724,507            63,724,507
      Capital surplus                                                                22,174,825            22,174,825
      Retained earnings                                                              17,004,601            14,283,984
      Accumulated other comprehensive income -  unrealized gain
        on securities available-for-sale - net of taxes                                 528,459               692,643
                                                                               ----------------      ----------------
              Total stockholders' equity                                            103,432,391           100,875,959
                                                                               ----------------      ----------------
              Total liabilities and stockholders' equity                       $    940,229,607      $    936,995,237
                                                                               ================      ================


            See accompanying notes to unaudited financial statements.



                               PACIFIC UNION BANK
                            Statements of Operations
               For the Three Months Ended March 31, 2003 and 2002
                                   (Unaudited)



                                                                           THREE MONTHS ENDED MARCH 31,
                                                                              2003              2002
                                                                        ---------------    --------------
                                                                                     
Interest income:
      Interest and fees on loans                                        $     9,938,446    $    8,746,100
      Dividend on Federal Home Loan Bank stock                                   43,120            22,826
      Interest on securities held-to-maturity                                   892,385                --
      Interest on securities available-for-sale                                 673,373         1,813,513
      Interest on Federal funds sold                                            271,524           285,500
      Other interest income                                                       9,425             4,076
                                                                        ---------------    --------------
        Total interest income                                                11,828,273        10,872,015

Interest expense:
      Demand - interest bearing                                                   6,268             9,537
      Savings and money market                                                  578,448           564,327
      Time certificates of deposit:
        Less than $100,000                                                      720,352           811,325
        $100,000 or more                                                      1,409,319         1,572,954
      Other borrowings                                                          598,323                --
                                                                        ---------------    --------------
        Total interest expense                                                3,312,711         2,958,143

        Net interest income before provision for loan losses                  8,515,563         7,913,872

Provision for loan losses                                                       600,000           100,000
                                                                        ---------------    --------------
        Net interest income after provision for loan losses                   7,915,563         7,813,873
                                                                        ---------------    --------------
Other income:
      Service charges on deposit accounts                                     1,640,115         1,598,628
      Remittance fees                                                           215,806           213,488
      Letter of credit related fees                                             191,807           193,328
      Gain on sale of loans                                                     428,992                --
      Other operating income                                                    461,406           532,749
                                                                        ---------------    --------------
        Total other income                                                    2,938,127         2,538,193
                                                                        ---------------    --------------
Other expenses:
      Salaries and employee benefits                                          3,231,985         2,892,861
      Security guards                                                           218,538           234,204
      Net occupancy expense                                                     697,098           721,657
      Equipment expense                                                         339,747           350,693
      Data processing                                                           471,381           448,148
      Net other real estate owned expense                                            --                41
      Office supplies                                                            76,102           115,351
      Legal and professional                                                    178,257           417,921
      Advertising and public relations                                          152,601           127,889
      Other operating expenses                                                  918,364           743,558
                                                                        ---------------    --------------
        Total other expenses                                                  6,284,072         6,052,323
                                                                        ---------------    --------------
        Income before income taxes                                            4,569,617         4,299,742

Income taxes                                                                  1,849,000         1,719,000
                                                                        ---------------    --------------
        Net income                                                      $     2,720,617    $    2,580,742
                                                                        ===============    ==============
Net income per share:
        Basic                                                           $          0.26    $         0.24
        Diluted                                                         $          0.25    $         0.24

Weighted-average common shares outstanding
        Basic                                                                10,621,554        10,607,426
        Diluted                                                              10,683,470        10,681,124


                 See accompanying notes to financial statements



                               PACIFIC UNION BANK
                            Statements of Cash Flows
               For the Three Months Ended March 31, 2003 and 2002
                                   (Unaudited)



                                                                                            MARCH 31,        MARCH 31,
                                                                                              2003             2002
                                                                                         --------------    -------------
                                                                                                     
Cash flows from operating activities:
    Net income                                                                           $    2,720,617    $   2,580,742
    Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation and amortization expenses                                                   305,570          345,341
       Provision for loan losses                                                                600,000          100,000
       Accretion of discount and amortization of premium
          on securities held-to-maturity, net                                                   156,511               --
       Accretion of discount and amortization of premium
          on securities available-for-sale, net                                                (283,382)          46,708
       Net loss (gain) on disposal of Bank premises and equipment                                 9,943           (7,100)
       Gain on sale of loans                                                                   (428,992)              --
       Origination of loans held for sale                                                            --
       Proceeds from sale of loans held for sale                                                     --
       Decrease (Increase) in accrued interest receivable                                       123,705         (322,626)
       Decrease in deferred income taxes                                                        442,000          945,001
       Stock dividend on Federal Home Loan Bank stock                                           (47,000)         (22,600)
       Increase in other assets                                                                (620,354)        (134,640)
       Decrease in accrued interest payable                                                     (33,661)      (1,926,489)
       Increase in other liabilities                                                            476,341          220,573
                                                                                         --------------    -------------
                   Net cash provided by operating activities                                  3,421,298        1,824,910
                                                                                         --------------    -------------
Cash flows from investing activities:
    Proceeds from maturities and redemptions of securities held-to-maturity                  12,992,806               --
    Proceeds from maturities and redemptions of securities available-for-sale                19,870,481       16,356,355
    Purchase of securities available-for-sale                                               (34,658,226)              --
    Proceeds from recoveries of written-off loans                                                12,321           28,207
    Net increase in loans                                                                   (48,700,027)      (4,650,770)
    Purchases of Bank premises and equipment                                                    (25,543)        (223,326)
    Proceeds from sale of Bank premises and equipment                                                --            7,100
                                                                                         --------------    -------------
                   Net cash (used in) provided by investing activities                      (50,508,188)      11,517,566
                                                                                         --------------    -------------
Cash flows from financing activities:
    Net increase (decrease) in demand deposits, non-interest-bearing                         16,648,737        (992,094)
    Net increase in demand deposits, interest-bearing                                            22,244        1,107,974
    Net decrease in money market and savings deposits                                       (23,491,866)      (9,785,573)
    Net increase (decrease) in time certificates of deposit                                   6,566,141     (12,886,956)
    Proceeds from exercise of stock options                                                          --           10,835
                                                                                         --------------    -------------
                   Net cash used in financing activities                                       (254,744)     (22,545,814)
                                                                                         --------------    -------------
                   Net decrease in cash and cash equivalents                                (47,341,634)      (9,203,338)

Cash and cash equivalents at beginning of period                                             86,765,173       68,073,953
                                                                                         --------------    -------------
Cash and cash equivalents at end of period                                               $   39,423,539    $  58,870,615
                                                                                         ==============    =============
Supplemental disclosures of cash flow information:
    Cash paid during the period for:
        Interest                                                                         $    3,346,372    $   4,884,632
        Income taxes                                                                     $    1,000,000    $     700,000
                                                                                         ==============    =============


            See accompanying notes to unaudited financial statements.


                               PACIFIC UNION BANK
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying unaudited interim financial statements of Pacific
Union Bank ("Bank") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003.

2.       COMPREHENSIVE INCOME

         Comprehensive income consists of net income and net unrealized gain
(loss) on securities available-for-sale. The comprehensive income amounted to
$2.6 million which included net income of $2.7 million and decrease in
unrealized gain of $164,000, which is net of the tax effect of $119,000 for the
three months ended March 31, 2003.

3.       EARNINGS PER SHARE

         The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation for the three months ended March 31,
2003 and 2002.



                                                  INCOME        SHARES    PER SHARE
2003                                            (NUMERATOR) (DENOMINATOR)  AMOUNT
- ----                                            ----------- ------------- ---------
                                                                 
Basic EPS -
    Income available to common stockholders     $2,720,617   10,621,554   $   0.26

Effect of Dilutive Securities -
    Options                                             --       61,916      (0.01)
                                                ----------   ----------   --------
Diluted EPS -
    Income available to common stockholders     $2,720,617   10,683,470   $   0.25
                                                ==========   ==========   ========




                                                   INCOME        SHARES    PER SHARE
2002                                             (NUMERATOR) (DENOMINATOR)  AMOUNT
- ----                                             ----------- ------------- ---------
                                                                  
Basic EPS -
    Income available to common stockholders      $2,580,742   10,607,426   $   0.24

Effect of Dilutive Securities -
    Options                                              --       73,698         --
                                                 ----------   ----------   --------
Diluted EPS -
    Income available to common stockholders      $2,580,742   10,681,124   $   0.24
                                                 ==========   ==========   ========


4.       CAPITAL TRANSACTIONS

         The Bank's outstanding number of shares was 10,621,554 at March 31,
2003. The Bank has declared a quarterly cash dividend of $0.05 per common share
on April 24, 2003. The cash dividend will be paid on or about May 27, 2003 to
all shareholders of record as of May 15, 2003.

5.       STOCK OPTIONS

         Had compensation cost for the Bank's stock option plan been determined
based on the fair values at the grant dates for awards under the plan consistent
with the fair value method of SFAS No. 123, the Bank's net income and earnings
per share for the three months ended March 31, 2003 and March 31, 2002 would
have been reduced to the pro forma indicated below.





                                             MARCH 31, 2003        MARCH 31, 2002
                                             --------------        --------------
                                                             
Net Income:
   As reported                               $   2,720,617         $   2,580,742
   Pro-forma                                     2,706,718             2,568,629

Earnings per share:
   As reported:
     Basic                                   $        0.26         $        0.24
     Diluted                                          0.25                  0.24

   Pro-forma:
     Basic                                   $        0.25         $        0.24
     Diluted                                          0.25                  0.24


6.       RECENT ACCOUNTING PRONOUNCEMENTS

         In, May 2002, Statement of Financial Accounting Standards No. 145,
Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections (SFAS No. 145), was issued. SFAS No. 145 will require gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under SFAS No. 4. Extraordinary treatment will no longer be permitted for
certain extinguishments considered to be part of a company's risk management
strategy. SFAS 145 also amends SFAS No. 13 to require certain modifications to
capital leases be treated as a sale-leaseback and modifies the accounting for
sub-leases when the original lessee remains a secondary obligor (or guarantor).
SFAS No. 145 is effective for financial statements issued after May 15, 2002,
and with respect to the impact of the reporting requirements of changes made to
SFAS No. 4 for fiscal years beginning after May 15, 2002. The adoption of SFAS
No. 145 did not have any impact on its financial condition or results of
operations.

         In November 2002, FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and
Rescission of FASB Interpretation No. 34, (FIN No. 45) was issued. FIN No. 45
clarifies requirements relating to the guarantor's accounting for, and
disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires
that upon issuance of a guarantee, companies recognize a liability for the fair
value of the obligation it assumes under that guarantee. The Company has adopted
the annual disclosure provisions of FIN No. 45 in the year ended December 31,
2002 consolidated financial statements. The adoption of FIN 45 did not have a
material impact on the Bank's financial statements.

         In October 2002, Statement of Financial Accounting No. 147,
Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147
applies to all acquisitions of financial institutions except those between
mutual enterprises. This Statement amends FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope
long-term customer-relationship intangible assets of financial institutions such
as depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used. The provisions of this Statement relating to the
application of the purchase method of accounting, was effective for acquisitions
for which the date of acquisition is on or after October 1, 2002. The provisions
of this Statement relating to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets were effective on
October 1, 2002. Transition provisions for previously recognized unidentifiable
intangible assets in were effective on October 1, 2002, with earlier application
permitted. The adoption of FASB No. 147 did not have a material effect on the
financial statements.

         In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation ( SFAS No. 123 ), to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in not only annual, but also interim financial statements about the effect the
fair value method would have had on reported results. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure requirements are effective for
interim periods beginning after December 15, 2002, and the Bank has adopted
those disclosure requirements.



         In January 2003, The Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation
addresses consolidation by business enterprises of variable interest entities
and clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. Certain disclosures are
effective immediately. The adoption of FIN No. 46 is not expected to have a
material effect on the financial statements.

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

         The following discussion and analysis includes forward-looking
statements regarding management's beliefs, projections and assumptions
concerning future results and events. When used the words "anticipate",
"believe", "estimate", "expect", and "intend" and words or phrases of similar
meanings as they relate to the Bank or the Bank's management, are intended to
identify forward-looking statements. These statements are not guarantees and
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Bank to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, governmental
policies and actions of regulatory agencies, costs associated with the Bank's
future expansion, competition from other commercial banks and other competition
and market and general economic factors. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on any forward-looking
statements, which speak as of the date hereof. All forward-looking statements
contained in this Form 10-Q are qualified in their entirety by this cautionary
statement.

The following discussion and analysis is intended to provide details of the
results of operations of the Bank for the three months ended March 31, 2003 and
2002 and financial condition at March 31, 2003 and at December 31, 2002. The
following discussion should be read in conjunction with Annual Report on Form
10-K/A for the year ended December 31, 2002 filed with the Federal Deposit
Insurance Corporation in particular as it relates to the critical accounting
policies as discussed in item 14 of the Form 10-K/A.

RESULTS OF OPERATIONS

         Net income for the quarter ended March 31, 2003 increased by $140,000
or 5.42% to $2.7 million compared to $2.6 million for the same period in 2002.
Diluted earnings per share for the first quarter of 2003 was $0.25, as compared
to $0.24 for the same period of 2002. Income before income tax expense amounted
to $4.6 million for the first quarter of 2003, an increase of $270,000 or 6.28%
compared to $4.3 million for the same quarter a year ago.

         The annualized return on average assets ("ROA") and return on average
stockholders' equity ("ROE") were 1.11% and 10.71%, respectively, for the first
quarter of 2003, compared to 1.29% and 11.53%, respectively, for the same
quarter of 2002.

NET INTEREST INCOME

         The Bank's primary source of income is net interest income, which is
the difference between interest income from interest-bearing assets and interest
paid on interest-bearing liabilities, such as deposits and other borrowings used
to fund those assets. The Bank's net interest income is affected by changes in
the volume of interest-earning assets and interest-bearing liabilities as well
as by changes in yield earned on interest-earning assets and rates paid on
interest-bearing liabilities. The Bank also generates non-interest income,
including the service charges on deposit accounts and other transactional fees.
The Bank's non-interest expenses consist primarily of personnel, occupancy and
equipment expense and other operating expenses. The Bank's results of operations
are affected by its provision for loan losses and may also



be significantly affected by other factors including general economic and
competitive conditions, changes in market interest rates, governmental policies
and actions of regulatory agencies.

         Net interest income before the provision for the loan losses increased
by $602,000 or 7.60% to $8.5 million in the first quarter of 2003, compared to
$7.9 million in the same quarter of 2002. Total interest income increased by
$956,000 or 8.80% to $11.8 million in the first quarter of 2003, compared to
$10.9 million in the same quarter of 2002 primarily due to an increase of $1.2
million in interest and fees on loans and partially offset by a $248,000
decrease in interest on investment securities.

         The increase in interest income is contributed by the average volume
increase of $174.9 million in interest earning-assets to $933.3 million in the
first quarter of 2003 from $758.4 million in the same quarter of 2002 despite
the decrease in yield on average interest earning-assets by 66 basis points
compared to the same quarter of 2002. The yield on average interest
earning-assets was 5.07% in the first quarter of 2003 compared to 5.73% in the
same quarter of 2002. Average net loans increased $133.8 million or 24.0% to
$691.0 million in the first quarter of 2003 compared to $557.2 million for the
corresponding quarter of 2002. Offsetting the increase in average net loans, the
yield on average loans decreased by 53 basis points to 5.75% in the first
quarter of 2003 from 6.28% in the same quarter of 2002, which negatively
affected the loan interest income. The decrease in the interest income of
Federal funds sold and investment securities was mainly due to the decrease in
yields in the first quarter of 2003 compared with the same quarter of 2002. The
average Federal funds sold increased $19.9 million to $88.4 million in the first
quarter of 2003 compared with $68.5 million for the corresponding quarter of
2002. The yield on average Federal funds sold dropped 44 basis points to 1.23%
compared to 1.67% for the same quarter of 2002. Average investment securities
increased $16.2 million to $146.3 million in the first quarter of 2003 compared
with $130.1 million for the corresponding quarter of 2002. The yield on average
investment securities for the first quarter of 2003 was 4.28% which was a
decrease of 130 basis points from 5.58% for the correspondent quarter of 2002.

         Total interest expense increased by $355,000 or 11.99% to $3.3 million
for the first quarter of 2003 compared to $3.0 million for the same quarter of
2002. The increase is mainly due to an increased interest expense of $598,000 on
$70.0 million in advances from Federal Home Loan Bank in the first quarter of
2003 compared to zero for the correspondent quarter of 2002. The interest
expense on time certificates of deposit of $100,000 or more decreased $164,000
or 10.40% to $1.4 million in the first quarter of 2003 compared to $1.6 million
for the same quarter of 2002. Average time certificates of deposit of $100,000
or more increased $15.2 million or 6.36% to $254.8 million in the first quarter
of 2003 compared with $239.6 million for the corresponding period of 2002. The
cost on average time certificates of deposit of $100,000 or more decreased 42
basis points to 2.24% in the first quarter of 2003 from 2.66% in the
corresponding quarter of 2002. The cost of funds decreased 16 basis points to
1.54% in the first quarter of 2003 compared with 1.70% in the same quarter of
2002.

NET INTEREST MARGIN

         Net interest margin decreased by 52 basis points or 12.47% to 3.65% for
the first quarter of 2003 compared to 4.17% for the corresponding period of
2002. The decrease in net interest margin was primarily attributable to the
decrease in the average interest-earning assets yield of 66 basis points to
5.07% in the first quarter of 2003 compared with 5.73% in the same quarter of
2002. The decrease in the average interest-earning assets yield was offset by
the cost of funds decrease of 16 basis points to 1.54% in the first quarter of
2003 from 1.70% in the corresponding quarter of 2002. Approximately 80% of the
loan portfolio has yields based upon the prime rate which automatically reprice
based upon changes in the prime rate. In a declining rate environment, the
Bank's net interest rate margin decreases as the interest-earning assets are
repriced at a faster pace than the interest-bearing liabilities.

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



               DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME



                                              For the Three Months Ended                 For the Three Months Ended
                                     ------------------------------------------   ----------------------------------------
                                                    March 31,2003                               March 31,2002
                                     ------------------------------------------   ----------------------------------------
                                                               Average   % to                            Average    % to
                                     Average    Income/         Rate/   Earning   Average    Income/      Rate/    Earning
                                     Balance    Expense       Yield(30) Assets    Balance    Expense     Yield(1)  Assets
                                     ------------------------------------------   ----------------------------------------
                                                                                           
ASSETS:
Interest-earning assets:
Loans, net(31)                       $690,989   $  9,938        5.75%    74.03%   $557,226   $  8,746      6.28%    73.47%
Federal Home Loan Bank stock            3,538         43        4.86      0.38       1,512         23      6.08      0.20
Taxable investment securities(32)
    U.S. Treasury Securities            2,341         18        3.08      0.25       1,508         22      5.84      0.20
    U.S. Governmental Agencies        144,009      1,548        4.30     15.43     128,432      1,790      5.58     16.93
Tax-exempt  Investment Securities:

    State & Municipal Obligation            -          -           -         -         200          2      3.85      0.03
Federal funds sold                     88,359        272        1.23      9.47      68,462        285      1.67      9.03
Interest-earning deposits               4,098          9        0.89      0.44       1,061          4      1.53      0.14
                                     --------   --------                ------    --------   --------              ------
Total interest-earning assets         933,334     11,828        5.07%   100.00%    758,401     10,872      5.73%   100.00%
                                     --------   --------                ------    --------   --------              ------
Non-interest-earning assets:
Cash and due from banks                23,940                                       25,024
Premises and equipment, net             6,502                                        9,311
Other real estate owned                     -                                            -
Customers' acceptance liabilities         595                                          583
Accrued interest receivable             3,208                                        3,394
Other assets                            9,989                                        4,260
                                     --------                                     --------
Total non-interest-earning assets      44,234                                       42,572
                                     --------                                     --------
Total assets                         $977,568                                     $800,973
                                     ========                                     ========

LIABILITIES AND STOCKHOLDERS'
 EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                     $156,766   $    551        1.43%             $113,589   $    486      1.74%
    Super NOW                           7,718          6        0.32                 7,116         10      0.57
    Savings                            45,373         27        0.24                42,413         78      0.75
    Time certificates of deposit
    of $100,000 or more               254,799      1,409        2.24               239,566      1,573      2.66
    Other time certificates of
    deposit                           107,571        721        2.72               103,606        811      3.17
Other borrowings                       70,031        598        3.42                     -          -         -
                                     --------   --------                          --------   --------
Total interest-bearing liabilities    642,258      3,312        2.09%              506,290      2,958      2.37%
                                     --------   --------                          --------   --------
Non-interest-bearing liabilities:
Demand deposits                       227,204                                      198,903
Other liabilities                       6,465                                        6,241
                                     --------                                     --------
Total non-interest-bearing
liabilities                           233,669                   1.54%              205,144                 1.70%
                                     --------                                     --------
Stockholders' equity                  101,641                                       89,539
                                     --------                                     --------
Total liabilities and stockholders'
equity                                977,568                                      800,973
                                     ========                                     ========
Net interest income                                8,516                                        7,914
                                                ========                                     ========
Net interest spread(33)                                         2.98%                                      3.36%
                                                               =====                                     ======
Annualized net interest margin(34)                              3.65%                                      4.17%
                                                               =====                                     ======
Ratio of average interest-bearing
assets to average interest-bearing
liabilities                                                   145.32%                                    149.80%
                                                              ======                                     ======


         The following table sets forth, for the years 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 changes in
average daily balances (volume) or changes in interest rates (rate). The
variances attributable to both the volume and rate changes have been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amount of the changes in each:

- -----------------------------------

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

(31) Loan includes loans held for sale and net of the allowance for loan losses,
     deferred fees and related direct costs. Non-accrual loans are included in
     the table for computation purposes, but the foregone interest of such loans
     is excluded. Loan fees were $1.4 million and $1.1 million at March 31, 2003
     and 2002.

(32) Yields on tax-exempt income have not been computed on a tax equivalent
     basis because tax-exempt securities are minimal.

(33) Represents the average rate earned on interest-earning assets less the
     average rate paid on interest-bearing liabilities.

(34) Represents net interest income as a percentage of average interest-earning
     assets.





                                        FOR THE THREE MONTH ENDED
                                                MARCH 31,
                                              2003 VS. 2002
                                          INCREASES (DECREASES)
                                            DUE TO CHANGE IN
                                       VOLUME     RATE(1)     TOTAL
                                       ------     -------     -----
                                         (DOLLARS IN THOUSANDS)
                                                    
EARNING ASSETS:
INTEREST INCOME:
   Loans, net(2) ....................  $ 1,969       (777)     1,192
   Federal Home Loan Bank stock .....       25         (5)        20
   Taxable investment securities:
     U. S. Treasury securities ......        9        (13)        (4)
     U. S. Government agencies ......      200       (442)      (242)
   Tax-exempt securities:(3)
     State and Municipal Obligation..       (2)         -         (2)
   Federal funds sold ...............       71        (84)       (13)
   Interest-earning deposits ........        7         (2)         5
                                       -------    -------    -------
       Total net change
           in interest income .......  $ 2,279    ($1,323)   $   956
                                       =======    =======    =======

DEPOSITS AND BORROWED FUNDS:
INTEREST EXPENSE:
   Money market deposits ............      162        (97)        65
   Super NOW ........................        1         (4)        (3)
   Savings deposits .................        5        (56)       (51)
   Time certificates of deposit in
     denominations of $100,000
     or more ........................       95       (260)      (165)
   Other time deposits ..............       30       (120)       (90)
   Other borrowings .................      598         (0)       598
                                       -------    -------    -------

       Total net change
           in interest expense ......      891       (537)       354
                                       -------    -------    -------
Change in net interest income .......  $ 1,388    ($  786)   $   602
                                       =======    =======    =======


PROVISION FOR LOAN LOSSES

         Provision for loan losses are made monthly, in anticipation of credit
risks. Credit risk is inherent in making loans. The Bank sets aside an allowance
for loan losses through charges to earnings. The charges are reflected in the
income statement as the provision for loan losses. Specifically, the provision
for loan losses represents the amount charged against current period earnings to
achieve an allowance for loan losses that in Management's judgment is adequate
to absorb losses inherent in the Bank's loan portfolio.

         For the first quarter of 2003 the provision for loan losses amounted to
$600,000 compared with $100,000 in the corresponding period of 2002. The
increase was mainly attributable to a strong loan growth in the first quarter of
2003. On a quarterly basis, management performs an analysis of the adequacy of
the allowance for loan losses. The results of this analysis for the quarter
ended March 31, 2003 determined that the allowance was adequate to cover losses
inherent in the portfolio. The procedures for monitoring the adequacy of the
allowance, as well as detailed information concerning the allowance itself, are
included below under "Allowance for loan losses."

NON-INTEREST INCOME

         Non-interest income increased $400,000 or 15.76% to $2.9 million in the
first quarter of 2003 compared to $2.5 million in the same quarter of 2002. The
increase resulted mainly from the gain of $429,000 on the sale of SBA loans.
Management expects to continue to recognize gains from the sale of SBA loans.
Offsetting the increase, other operating income decreased by $72,000. The other
operating income consists of credit card related fees, mortgage loan related
fees, merchant discount fees, remittance and cable fees and other various fees.

         The following table sets forth the various components of the Bank's
non-interest income for the periods indicated:

- ---------------------------
(1) Rates for these periods on which calculations are based have been
    annualized.

(2) Loan fees net of direct cost have been included in the calculation of
    interest income. Loan fees were $189,000 and $134,000 for the three months
    ended March 31, 2003 and 2002, respectively. Loans are net of the allowance
    for loan losses, deferred fees and related direct costs.

(3) Yields on tax-exempt income have not been computed on a tax equivalent
    basis, because the percentage of tax-exempt securities is minimal.



                              NON-INTEREST INCOME
                             (Dollars in thousands)



                                     Three Months Ended  Increase (Decrease)
                                     ------------------  -------------------
                                     03/31/03 03/31/02  Amount      Percent(%)
                                     -------- --------  ------      ----------
                                                        
Service charges on deposit accounts   $1,640   $1,599   $   41         2.56 %
Remittance fees                          216      213        3         1.41
Letter of credit related fees            192      193       (1)       (1.04)
Gain on sale of loans                    429       --      429       100.00
Other operating income                   461      533      (72)      (13.32)
                                      ------   ------   ------       ------
        Total                         $2,938   $2,538   $  400        15.76 %
                                      ======   ======   ======       ======


NON-INTEREST EXPENSE

         Non-interest expense increased by $232,000 or 3.83% to $6.3 million in
the first quarter of 2003, compared to $6.1 million in the corresponding quarter
of 2002. The increase is mainly attributable to an increase of $339,000 in
salaries and employee benefits offset by a decrease of $240,000 in legal and
professional expenses. An increase in salaries and employee benefits was
partially due to the increases in reserves for medical expenses and annual bonus
for 2003. The decrease in the legal and professional expenses was mainly due to
reduced consulting expenses associated with an enterprise-wide risk management
implementation which peaked in early 2002. For the first three months of 2003,
the consulting expenses amounted to $20,000 compared to $382,000 for the same
period of 2002. Other operating expenses consist of other loan related expenses,
regulatory assessment expenses, employee related fees and other outside fees.
The efficiency ratio for the first quarter of 2003 was 54.86% compared to
$57.91% for the correspondent quarter of 2002

         The following table presents the components of the non-interest expense
with the amount and percentage changes for the periods indicated:



                              NON-INTEREST EXPENSE
                             (Dollars in thousands)



                                 Three Months Ended  Increase / (Decrease)
                                 ------------------  ---------------------
                                  03/31/03 03/31/02  Amount    Percent (%)
                                  -------- --------  ------    -----------
                                                   
Salaries and employee benefits     $3,232   $2,893   $  339       11.72 %
Security guards                       219      234      (15)      (6.41)
Net occupancy expense                 697      722      (25)      (3.46)
Equipment expense                     340      351      (11)      (3.13)
Data processing                       471      448       23        5.13
Office supplies                        76      115      (39)     (33.91)
Legal and professional                178      418     (240)     (57.42)
Advertising and public relations      153      128       25       19.53
Communication expenses                263      243       20        8.23
Other operating expenses              655      500      155       31.00
                                   ------   ------   ------      ------
        Total                      $6,284   $6,052   $  232        3.83 %
                                   ======   ======   ======      ======


INCOME TAX

         The effective tax rate for the first quarter ended March 31, 2003 was
40.46% compared to 39.98% for the same period of 2002.

         The Bank files its California tax return using the Water's Edge Unitary
method. When computing its California franchise tax liability, the California
law requires that the Bank consider the taxable income allocated from estimated
combined net taxable income using the apportionment factor of property, payroll
and revenues over combined property, payroll and revenue of its foreign-owned
majority shareholder.

FINANCIAL CONDITION

         The Bank's total assets were $940.2 million at March 31, 2003, an
increase of $3.2 million or 0.35% from the $937.0 million at December 31, 2002.
The net increase is attributable to a $48.5 million or 7.20% increase in net
loans, a $6.9 million or 28.85% increase in cash and due from banks, and offset
by a decrease in Federal funds sold of $54.3 million or 86.88%. Total deposits
decreased by $255,000 to $759.7 million at March 31, 2003 from $760.0 million at
December 31, 2002. The non-interest bearing deposits of $16.6 million or 7.45%
and time certificates of deposit of $100,000 or more of $9.1 million or 3.51%
increased in the first quarter of 2003 compared with December 31, 2002.
Offsetting these increases, money market deposits and savings deposits decreased
a $23.5 million or 13.78% in the first quarter of 2003 compared with the same
period of 2002. The Bank's advances from Federal Home Loan Bank remained at a
$70.0 million at March 31, 2003, the same as at December 31, 2002. Stockholders'
equity increased $2.6 million or 2.53% to $103.4 million at March 31, 2003 from
$100.9 million at December 31, 2002.

INTEREST-EARNING ASSET MIX

         Total earning assets amounted to $890.4 million at March 31, 2003,
compared with $894.5 million at December 31, 2002, representing a decrease of
$4.1 million or 0.46%. The composition of the earning assets changed slightly at
March 31, 2003 compared with December 31, 2002. The net loans as a percentage of
total earning assets increased 5.79%



to 81.17% and the percentage of Federal funds sold to the total earning assets
decreased 6.07% to 0.92% at March 31, 2003 compared to December 31, 2002. On an
average basis, interest-earning assets amounted to $933.3 million, an increase
of $174.9 million or 23.07% for the first three months of 2003 compared to
$758.4 million for the same period of 2002.

         The table below shows the changes in the earning asset mix as of the
dates indicated:



                                            (Dollars in thousands)
                                   As of  03/31/03        As of 12/31/02
                                   ---------------        --------------
Types of earning assets          Amount     Percent (%)  Amount  Percent (%)
                                 ------     -----------  ------  -----------
                                                     
Federal funds sold              $  8,200        0.92%   $ 62,500     6.99%
Federal Home Loan Bank stock       3,585        0.40       3,538     0.40
Securities held-to-maturity       76,164        8.55      89,314     9.98
Securities available-for-sale     79,489        8.93      64,701     7.23
Net loans                        722,775       81.17     674,258    75.38
Interest-bearing deposits            230        0.03         211     0.02
                                --------      ------    --------   ------
        Total earning assets    $890,443      100.00%   $894,522   100.00%
                                ========      ======    ========   ======


SECURITIES

         The Bank classifies its securities as held-to-maturity or
available-for-sale. The securities classified as held-to-maturity are those that
the Bank has the positive intent and ability to hold until maturity. These
securities are carried at amortized cost. The securities that could be sold in
response to changes in interest rate, increased loan demand, liquidity needs,
capital requirements or other similar factors, are classified as securities
available-for-sale. These securities are carried at fair value, with unrealized
gains or losses reflected net of tax as a component of comprehensive income. As
of March 31, 2003, the Bank had a net unrealized gain of $912,000 on its
available for sale portfolio. Accumulated other comprehensive income for the
first three months of 2003 was $164,000 representing the net unrealized loss,
net of tax.

         The total investment securities increased $1.6 million or 1.06% to
$155.7 million at March 31, 2003 from $154.0 million at December 31, 2002.
During the first quarter of 2003, purchased available-for-sale securities
amounted to $34.7 million compared to zero for the correspondent quarter of
2002.

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



                              INVESTMENT PORTFOLIO
                             (Dollars in thousands)



                                    As of  03/31/03       As of 12/31/02
                                    ---------------       --------------
                                  Amortized    Fair     Amortized   Fair
                                    Cost       Value      Cost      Value
                                  ---------  --------   ---------  --------
                                                       
AVAILABLE-FOR-SALE:
U.S. Treasury securities          $ 20,994   $ 21,052   $  1,003   $  1,074
U.S. Government agencies            15,729     15,857     25,996     26,290
Mortgage-backed securities (1)      39,349     39,999     34,000     34,730
State and political subdivision      2,505      2,581      2,507      2,607
                                  --------   --------   --------   --------
   Total available-for-sale       $ 78,577   $ 79,489   $ 63,506   $ 64,701
                                  ========   ========   ========   ========

HELD-TO-MATURITY:
Mortgage-backed securities (1)      76,164     77,404     89,314     90,799
   Total held-to-maturity           76,164     77,404     89,314     90,799
                                  --------   --------   --------   --------
   Total investment securities    $154,741   $156,893   $152,820   $155,500
                                  ========   ========   ========   ========


- ----------------------------------
(1) Principal balance may be prepaid before contracted maturity date.

                  INVESTMENT MATURITIES AND REPRICING SCHEDULE
                             (Dollars in thousands)
                              As of March 31, 2003



                                                        After One But       After Five but
                                   Within One Year    Within Five Years    Within Ten Years     After Ten Years         Total
                                --------------------  -----------------    ----------------  --------------------- ----------------
                                 Amount     Yield(1)  Amount   Yield (1)   Amount  Yield(1)   Amount     Yield (1)  Amount  Yield(1)
                                --------------------  -----------------    ----------------  --------------------- ----------------
                                                                                              
AVAILABLE-FOR-SALE:
U.S. Treasury securities        $ 19,987      1.16%   $  1,065   5.82%     $     -     -%    $      -         -%   $ 21,052   2.09%
U.S. Government agencies           6,105      5.94       9,752   2.89            -     -            -         -      15,857   4.42
Mortgage-backed  securities       18,520      5.65      11,011   5.94            -     -       10,468      5.91      39,999   5.75
State and political                1,527      6.13       1,054   6.17            -     -            -         -       2,581   6.14
                                ------------------    ---------------      -------------     ------------------    ---------------
  Total available-for-sale      $ 46,139      5.29%   $ 22,882   5.61%     $     -     -%    $ 10,468      5.91%   $ 79,489   5.42%
                                ==================    ===============      =============     ==================    ===============

HELD-TO-MATURITY:
Mortgage-backed securities(2)          -         -      76,164   4.36            -     -            -         -      76,164   4.36
                                ------------------    ---------------      -------------     ------------------    ---------------
    Total held-to-maturity             -         -      76,164   4.36            -     -            -         -      76,164   4.36
                                ------------------    ---------------      -------------     ------------------    ---------------
       Total investment         $ 46,139      5.29%   $ 99,046   5.11%     $     -     -%    $ 10,468      5.91%   $155,653   5.26%
                                ==================    ===============      =============     ==================    ===============


(1)  Yield on tax-exempt obligations has not been computed on a tax equivalent
     basis because the percentage of tax-exempt securities is minimal.

(2)  The mortgage-backed securities reflect stated maturities and not
     anticipated prepayments.

LOANS

         The Bank experienced strong loan demand in the first three months of
2003. Total gross loans increased $48.9 million or 7.17% to $732.1 million at
March 31, 2003 from $683.1 million at December 31, 2002. Total commercial and
industrial loans increased $13.5 million or 10.78% to $138.9 million at March
31, 2003 from $125.4 million at December 31, 2002. Commercial real estate loans
increased $44.7 million or 11.29% and residential mortgage loans decreased $8.2
million or 21.83% during the first three months of 2003. $6.1 million of the
guaranteed portion of SBA loans were sold during the first quarter of 2003.

         The following table sets forth the composition of the Bank's loan
portfolio as of the dates indicated:



                           LOAN PORTFOLIO COMPOSITION
                             (Dollars in thousands)



                                 As of 03/31/03           As of 12/31/02
                                 --------------           --------------
                                            Percent                  Percent
                               Amount      of Total     Amount      of Total
                               ------      --------     ------      --------
                                                        
Commercial and industrial     $138,881       18.97%    $125,363       18.35%
Installment loans               19,812        2.71       21,225        3.11
Real estate loans:
   Commercial                  440,492       60.17      395,807       57.94
   Residential mortgage         29,283        4.00       37,459        5.48
Home equity                      6,090        0.83        5,993        0.88
SBA                             69,473        9.49       74,560       10.91
Other (1)                        3,502        0.48        3,619        0.53
Trade Finance                   12,566        1.72       12,488        1.83
Bills Bought                    11,980        1.64        6,617        0.97
                              --------      ------     --------      ------
      Total gross loans (2)   $732,079      100.00%    $683,131      100.00%
                              ========      ======     ========      ======


- ---------------
(1) Consists predominantly of credit card loans.

(2) Net of unearned income and participation loans sold.

NON-PERFORMING ASSETS

         Non-performing assets include loans past due 90 days or more and still
accruing interest, non-accrual loans and OREO. Total non-performing assets at
March 31, 2003 increased by $135,000 to $2.2 million, compared with December 31,
2002. Total non-performing assets were 0.23% of total assets at March 31, 2003,
compared to 0.22 % of total assets at December 31, 2002. The majority balance of
the non-accrual home mortgage loans represented a single commercial loan secured
by the business owners' home of $696,000 at March 31, 2003 which the Bank
anticipates a full collection.

The non-accrual on home mortgage loans, which include a single loan balance of
$696,000, amounted to $802,000 in total at March 31, 2003.

         As of March 31, 2003, the Bank had no OREO. The non-performing loan
coverage ratio, defined as the allowance for loan losses to non-performing
loans, slightly decreased to 430.54 % as of March 31, 2003 from 437.96% at
December 31, 2002.

         The following table provides information with respect to the components
of the Bank's non-performing assets as of the dates indicated.



                             NON-PERFORMING ASSETS
                             (Dollars in thousands)



                             3/31/2003   12/31/2002   3/31/2002
                             ---------   ----------   ---------
                                             
NON-ACCRUAL LOANS:
Commercial and industrial      $1,137      $1,091      $1,436
Installment loans                  37          28           9
Real estate loans:
   Commercial                       -           -       3,294
   Home mortgage                  802         805         117
Home equity                         -           -         127
SBA                               159           -         170
Other                               1           -           5
Trade Finance                       -          74           -
Bills Bought                        -           -           -
                               ------      ------      ------
     Total                     $2,136      $1,998      $5,158


                                            (Table continues on following page.)



                                                               3/31/2003   12/31/2002    3/31/2002
                                                               ---------   ----------    ---------
                                                                                
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
   (AS TO PRINCIPAL OR INTEREST):
Commercial and industrial                                       $    -       $    -       $    -
Installment loans                                                    -            -            -
Real estate loans:
   Commercial                                                        -            -            -
   Home mortgage                                                     -            -            -
Home equity                                                          -            -            -
SBA
Other                                                               25           28           75
Trade Finance                                                        -            -            -
Bills Bought                                                         -            -            -
                                                                ------       ------       ------
     Total                                                      $   25       $   28       $   75
RESTRUCTURED LOANS:
Commercial and industrial                                       $    -       $    -       $    -
Installment loans                                                    -            -            -
Real estate loans:
   Commercial                                                        -            -            -
   Home mortgage                                                     -            -            -
Home equity                                                          -            -            -
SBA
Other                                                                -            -            -
Trade Finance                                                        -            -            -
Bills Bought                                                         -            -            -
                                                                ------       ------       ------
     Total                                                      $    -       $    -       $    -
                                                                ------       ------       ------
     Total non-performing loans                                 $2,161       $2,026       $5,233
Other real estate owned                                              -            -            -
                                                                ------       ------       ------
Total non-performing assets                                     $2,161       $2,026       $5,233
                                                                ======       ======       ======
Non-performing loans as a percentage of total gross loans         0.30%        0.30%        0.91%
Non-performing assets as a percentage of total gross loans
and other real  estate owned                                      0.30%        0.30%        0.91%


ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses amounted to $9.3 million or 1.27% of
total loans as of March 31, 2003 compared to $8.9 million or 1.30% of total
loans at December 31, 2002.

         The following table presents information relating to the allowance for
loan losses for the periods indicated

(Dollars in thousands)





                                                                    YTD             YTD              YTD
                                                                  03/31/03        12/31/02         03/31/02
                                                                 ---------        ---------       ----------
                                                                                         
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period                                   $   8,873        $   9,467       $    9,467
Provision for loan losses                                              600            1,100              100
Loans charged-off                                                     (181)          (1,805)            (393)
Recoveries of charged-off loans                                         12              111               28
                                                                 ---------        ---------       ----------
Balance at end of period                                             9,304            8,873            9,202
                                                                 =========        =========       ==========

RATIOS:
Net loan charge-offs to average total loans                           0.10%            0.28%            0.26%
Provision for loan losses to average total loans                      0.34             0.18             0.02
Allowance for loan losses to gross loans at end of period             1.27             1.30             1.60
Allowance for loan losses to total non-performing loans             430.54           437.96           175.85
Net loan charge-offs to allowance for loan losses at end of           7.25            19.10             3.97
period
Net loan charge-offs to provision for loan losses                    28.11           154.05           365.48


         In determining the allowance for loan losses, management continues to
assess the risk inherent in the loan portfolio, the possible impact of known and
potential problem loans, and other factors such as portfolio composition, loan
concentration, and trends in local economic conditions.

         The Bank formally assesses the allowance for loan losses on a quarterly
basis. The allowance for loan losses begins with Management reviewing each
individual classified and criticized loan in detail, and evaluating, among other
things, the adequacy of collateral, payment record, current loan status and
borrowers' financial capacity. A loan loss allowance is assigned to each
impaired loan. Loans categorized as impaired from this quarterly allocation of
loan loss allowance are based upon the specifics of the loans' circumstances,
including updated collateral value, borrowers' or guarantors' financial
capacity, payment record and recent conversations with the borrower.
Additionally, each quarter the Bank updates its twelve-quarter loss migration
analysis for its commercial loan pool, six-quarter loss migration analysis for
its homogeneous loan pool and four-quarter loss migration analysis for its
credit card loan pool to drive the rolling respective loan loss experience
percentages. These loan pools are assigned an appropriate reserve factor based
upon the Bankss.s historical charge off experience, other factors, and then
accounts for qualitative adjustments that take into consideration current
conditions. The allowance is maintained at a level the Bank considers adequate
to cover inherent risk of probable loss associated with its loan portfolio under
prevailing and anticipated economic conditions.

         Based on the Bank's evaluation process and the methodology to determine
the level of the allowance for loan losses, management believes the allowance
level as of March 31, 2003 to be adequate to absorb the estimated known and
inherent risks identified through its analysis. However, no assurance can be
given that the Bank will not sustain losses in any given period which could be
substantial in relation to the size of the allowance.

DEPOSITS

         The Bank's total deposits amounted to $759.7 million at March 31, 2003,
a decrease of $254,000 from $760.0 million at December 31, 2002. The Bank's
average deposits increased $94.2 million or 13.36% to $799.4 million for the
first quarter of 2003 from $705.2 million for the same quarter of 2002. The
average money market accounts increased $43.2 million or 38.01% to $156.8
million for the first quarter of 2003 from $113.6 million for the same quarter
of 2002. The average non-interest bearing accounts increased $28.3 million or
14.22% to $227.2 million for the first quarter of 2003 from $198.9 million for
the same quarter of 2002. The ratio of average noninterest-bearing deposits to
average total deposits was 28.42% for the first quarter of 2003 and 28.21% for
the same quarter of 2002. The Bank's average total cost



of deposits was 1.38% for the first quarter of 2003 and 1.70% for the same
quarter of 2002. The Bank does not hold any brokered deposits.

         The following table illustrates the deposit mix as of the dates
indicated:



                                               (Dollars in thousands)
                                   As of  March 31, 2003  As of December 31, 2002
                                   ---------------------  ----------------------
                                    Amount       Percent     Amount    Percent
                                    ------       -------     ------    -------
                                                           
Types of deposits:
Demand, non-interest-bearing       $240,026       31.59%    $223,377    29.39%
Money market accounts               101,736       13.39      126,272    16.61
Super Now                             7,624        1.00        7,602     1.00
Savings                              45,259        5.96       44,215     5.82
Time certificates of deposits of
    $100,000 or more                267,720       35.24      258,652    34.03
Other time deposits                  97,376       12.82       99,877    13.15
                                   --------      ------     --------   ------
    Total deposits                 $759,741      100.00%    $759,995   100.00%
                                   ========      ======     ========   ======


OTHER BORROWINGS

         The Bank's borrowings from Federal Home Loan Bank amounted to $70.0
million at March 31, 2003 and December 31, 2002.

CAPITAL RESOURCES

         As of March 31, 2003, stockholders' equity was $103.4 million or 10.99%
of total assets, compared with $100.9 million or 10.77% as of December 31, 2002.

         The Bank is required to maintain a minimum ratio of qualifying total
capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital
Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a
ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1
Risk-Based Capital Ratio"). As of March 31, 2003 and December 31, 2002, the
Bank's Total Risk-Based Capital Ratios were 15.38% and 15.95%, respectively, and
its Tier 1 Risk Based Capital Ratios were 14.13% and 14.70%, respectively. The
Bank's regulatory capital continued to well exceed the regulatory minimum
requirements on March 31, 2003; however, the Bank is no longer considered to be
"well capitalized" as a result of Consent Agreement entered into with Federal
Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal
Proceedings." To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table and not be subject to any regulatory order, agreement or directive.

         Banks are also required to maintain a leverage capital ratio designed
to supplement the risk-based capital guidelines. Banks that have received the
highest rating of the five categories used by regulators to rate banks and are
not anticipating or experiencing any significant growth must maintain a ratio of
Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage
Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must
maintain capital levels commensurate with the level of risk to which they are
exposed, including the volume and severity of problem loans, and federal
regulators may, however, set higher capital requirements when a bank's
particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.52%
and 11.56% at March 31, 2003 and December 31, 2002, respectively.

         The following table presents the Bank's regulatory capital amount and
ratios as of March 31, 2003.





                                                                    AS OF MARCH 31, 2003
                                                                   (DOLLARS IN THOUSANDS)
                                            ------------------------------------------------------------------
                                                                                                 TO BE WELL
                                                                                             CAPITALIZED UNDER
                                                                      FOR CAPITAL            PROMPT CORRECTIVE
                                                    ACTUAL         ADEQUACY PURPOSE          ACTION PROVISIONS
                                            --------------------  ---------------------   ----------------------
                                             AMOUNT       RATIO    AMOUNT       RATIO      AMOUNT       RATIO
                                            --------      ------  --------   ----------   --------   -----------
                                                                                   
Total capital (to risk-weighted assets)     $111,990      15.38%  $ 58,252   > or = 8.0%  $ 72,815   > or = 10.0%

Tier I capital (to risk-weighted assets)     102,884      14.13     29,125   > or = 4.0     43,687   > or =  6.0

Tier I capital (to average assets)           102,884      10.52     39,103   > or = 4.0     48,878   > or =  5.0
                                            ========      =====   ========   ==========   ========   ===========


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LIQUIDITY AND INTEREST RATE SENSITIVITY

         Liquidity is the Bank's ability to maintain sufficient cash flow to
meet deposit withdrawals and loan demands and to take advantage of investment
opportunities as they arise. The Bank's principal sources of liquidity have been
growth in deposits and proceeds from the maturity of securities and repayments
from loans. To supplement its primary sources of liquidity, the Bank maintained
$178.7 million of borrowing capacity under a collateralized line of credit with
the Federal Home Loan Bank of San Francisco.

         At March 31, 2003, the Bank's available liquidity totaled $295.0
million, which was approximately 38.83% of total deposits and 113.62% of total
volatile liabilities compared to $186.4 million at December 31, 2002, which was
approximately 24.52% of total deposits and 71.85% of total volatile liabilities.
The volatile liabilities are comprised of time certificates of deposit of
$100,000 or more and other volatile deposits. The Bank's policy is to maintain a
minimum fund availability to total deposit and borrowing ratio of 20% and a
minimum fund availability to total volatile liability ratio of 50%. The Bank
considers any excessive cash holdings or balances in due from banks, overnight
Fed funds sold, uncollateralized available-for-sale securities and readily
available Federal Home Loan Bank advances as funds availability. The Bank
follows the regulatory definition of volatile liabilities, which is Jumbo CD's.
The ratios of the average balance of Jumbo CD's to average total deposits for
March 31, 2003 and December 31, 2002 were 31.87% and 33.99%, respectively.

         The Bank had a significant portion of its time deposits maturing within
one year or less as of March 31, 2003. Management anticipates that there may be
some outflow of these deposits upon maturity due to the keen competition in the
Bank's market place. However, based on its historical runoff experience, the
Bank expects the outflow will be minimal and can be replenished through its
normal growth in deposits.

         Market risk is the risk of loss from adverse changes in market prices
and rates. The Bank's market risk arises primarily from interest rate risk
inherent in its lending, investment and deposit taking activities. The Bank's
profitability is affected by fluctuations in interest rates. A sudden and
substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through
analyzing the repricing characteristics of its loans, securities, and deposits
on an on-going basis. One of the primary goals is to optimize net income under
varying interest rate environments. The focus of this process is the
development, analysis, implementation and monitoring of earnings enhancement
strategies that provide stable earnings and capital levels during periods of
changing interest rates. Management uses both interest rate sensitivity
analysis, and a simulation model to measure and quantify the impact to the
Bank's profitability on the market value of its assets and liabilities.

         The interest rate sensitivity analysis measures the repricing
mismatches between assets and liabilities. The interest rate sensitivity gap is
determined by subtracting the amount of liabilities from the amount of assets
that reprice in a particular time interval. A liability sensitivity results when
more liabilities than assets reprice or mature within a given



period. Conversely, an asset sensitive position results when more assets than
liabilities reprice within a given period. At March 31, 2003, the Bank
maintained positive one-year gap position of $147.0 million or 15.63% of total
assets. This compared with a positive one-year gap position of $86.5 million or
9.23% of total assets at December 31, 2002. The increase in gap was primarily
due to a net increase in rate sensitive assets over rate sensitive liabilities.
Because the Bank's assets tend to reprice more frequently than its liabilities
over a twelve months horizon, the Bank will realize lower net interest income in
a falling rate environment.

         Since an interest rate sensitivity analysis does not measure the timing
differences in the repricing of assets and liabilities, the Bank uses a
simulation model to quantify the extent of the differences in the behavior of
the lending and funding rates, so as to project future earnings or market values
under alternative interest scenarios.

         The following table presents the interest rate sensitivity of the
Bank's interest-earning assets and interest-bearing liabilities as of March 31,
2003 using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms. Actual payment patterns may differ from contractual payment patterns.

                       INTEREST RATE SENSITIVITY ANALYSIS
                             (Dollars in thousands)



                                                             At March 31, 2003
                                                             -----------------
                                                   Amounts Subject to Repricing Within
                                         ---------------------------------------------------------
                                                       3-12                    After 5
                                         0-3 Months   Months      1-5 Years     Years       Total
                                         ---------   ---------    ---------   ---------   ---------
                                                                           
INTEREST-EARNING ASSETS:
     Total Loans*                        $ 590,888   $  17,544    $  52,787   $  70,169   $ 731,388
     Federal Home Loan Bank Stock            3,585          --           --          --       3,585
     Investment securities                  24,836      21,303       99,046      10,468     155,653
     Federal Funds sold                      8,200          --           --          --       8,200
     Interest-earning deposits                 230          --           --          --         230
                                         ---------   ---------    ---------   ---------   ---------
          Total                            627,739      38,847      151,833      80,637     899,056
                                         ---------   ---------    ---------   ---------   ---------
INTEREST-BEARING LIABILITIES:
     Money market                          101,736          --           --          --     101,736
     NOW                                     7,624          --           --          --       7,624
     Savings deposits                       45,259          --           --          --      45,259
     Time deposits of $100,000 or more     119,314     146,863        1,543          --     267,720
     Other Time deposits                    42,004      46,804        8,568          --      97,376
     Borrowed funds                             --      10,000       60,000          --      70,000
                                         ---------   ---------    ---------   ---------   ---------
          Total                          $ 315,937   $ 203,667    $  70,111   $      --   $ 598,715
                                         =========   =========    =========   =========   =========
Interest rate sensitivity gap            $ 311,802   $(164,820)   $  81,722   $  80,637   $ 309,341
Cumulative interest rate sensitivity gap $ 311,802   $ 146,982    $ 228,704   $ 309,341
Cumulative interest rate sensitivity
   gap   ratio as a percentage of total
   assets                                    33.16%      15.63%       24.32%      32.90%


*Loans including loan held for sale and unearned fees and excluding Non-Accrual
Loans



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

         The following table sets forth the Bank's estimated net interest income
over a twelve month period and NPV based on the indicated changes in market
interest rates as of March 31, 2003.



                        %CHANGE IN
      CHANGE        NET INTEREST INCOME                    %CHANGE
(IN BASIS POINTS)   (NEXT TWELVE MONTHS)                   IN NPV
- -----------------   --------------------                   ------
                                                     
      +200                 10.48%                           7.42%
      +100                  5.73                            4.05
         0                     -                               -
      -100                 -8.06                           -4.28
      -125                 -9.95                           -5.95


         As indicated above, the net interest income increases (decreases) as
market interest rates rise (fall). This is due to the fact that the Bank
maintained a positive gap and also a substantial portion of the interest earning
assets reprice immediately after the rate change, interest-bearing liabilities
reprice slower than interest-earning assets, and interest-bearing liabilities do
not reprice to the same degree as interest earning assets, given a stated change
in the interest rate. The NPV increases (declines) as the interest income
increases (decreases) since the change in the discount rate has a greater impact
on the change in the NPV than does the change in the cash flows.

         Management believes that the assumptions used by it to evaluate the
vulnerability of the Bank's operations to changes in interest rates approximate
actual experience and considers them reasonable; however, the interest rate
sensitivity of the Bank's assets and liabilities and the estimated effects of
changes in interest



rates on the Bank's net interest income and NPV could vary substantially if
different assumptions were used or actual experience differs from the historical
experience on which they are based.

         The Bank's historical strategies in protecting both net interest income
and economic value of equity investments from significant movements in interest
rates have involved restructuring its investment portfolio and using FHLB
advances. Bank policies also permit the purchase of rate caps and floors, and
engaging in interest rate swaps, although the Bank has not yet engaged in either
of these activities. At March 31, 2003, the Bank had no derivative instruments
outstanding.

ITEM 4.  CONTROLS AND PROCEDURES

(a)      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         The Bank's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of the Bank's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a
date within 90 days of the filing date of this report (the "Evaluation Date")
have concluded that as of the Evaluation Date, the Bank's disclosure controls
and procedures were adequate and effective to ensure that material information
relating to the Bank would be made known to them by others within the Bank,
particularly during the period in which this quarterly report was being
prepared.

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

(b)      CHANGES IN INTERNAL CONTROLS

         There were no significant changes in the Bank's internal controls or in
other factors that could significantly affect these internal controls subsequent
to the Evaluation Date, nor any significant deficiencies or material weaknesses
in such controls requiring corrective actions. As a result, no corrective
actions were taken.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         From time to time, the Bank is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration
information furnished by counsel to the Bank as to the current status of these
claims or proceedings to which the Bank is a party, Management is of the opinion
that the ultimate aggregate liability represented thereby if any, will not have
a material adverse affect on the financial condition of the Bank.

         The Bank has been subject to a Consent Agreement with the FDIC pursuant
to Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(1) since April 14, 2002. The Consent Agreement addresses actions
necessary to correct certain Bank Secrecy Act ("BSA") compliance deficiencies
including inadequate training and internal controls, and ineffective independent
testing of such controls, which deficiencies are alleged by the FDIC but not
admitted to by the Bank. Even prior to entering into the Consent Agreement, the
Bank began taking proactive steps in 2001 to improve its BSA compliance. For
example, in late 2001, the Bank implemented an enterprise-wide risk management
infrastructure, which includes a comprehensive compliance and training program.
This step was taken with the assistance of a leading financial services
consulting firm, The Secura Group, which the Bank retained in November 2001 to
advise and assist the Bank in its compliance efforts. In addition, the Bank
created a new senior executive position of Chief Risk Officer and hired this
officer in May 2002 to enhance overall Risk Management processes. The Bank has
also taken other steps to



ensure the accuracy of the customer exemption process. Finally, to improve the
overall efficiency and effectiveness of BSA monitoring, the Bank purchased a new
automated BSA tracking/monitoring system which was installed in 2002 and is in
the process of implementation. The Bank has experienced certain technical
difficulties with respect to the integration of this software with the Bank's
existing customer database information system, resulting in a delay in the
Bank's ability to fully comply with certain requirements of the Consent
Agreement. The Bank expects this system to be fully functional and to resolve
these technical difficulties shortly, which should enable the Bank to satisfy
one of the most critical requirements of the Consent Agreement. Until the new
software is fully functional, the Bank is making every effort to implement
alternative procedures for those aspects of compliance which will ultimately be
achieved through the use of the computer tracking system. In addition, the Bank
is in the process of improving its due diligence efforts to identify and monitor
high-risk accounts, improve internal controls to assure the accuracy and
completeness of internal reports, and intensify personnel training. The Board of
Directors, Management, Officers, and employees of the Bank are fully committed
to complying with all of the terms of the Consent Agreement, and the Bank has
been working and will continue to work closely with the FDIC towards this end.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not Applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable

ITEM 5.  OTHER INFORMATION

         Not Applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibit



 Exhibit Table                                                                                 Exhibit Table
Reference Number                                     Item                                          Number
- ----------------                                     ----                                          ------
                                                                                         
      3.1              Articles of Incorporation, as Amended(1).........................

      3.2              2002 Amendment to Articles of Incorporation(2)...................

      3.3              Bylaws, as Amended(1)............................................

      3.4              2001 Amendment to Bylaws(3)......................................


- ---------------------------

(1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration
    Statement, as filed with the FDIC on June 12, 2000.

(2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed
    with the FDIC on April 1, 2003.

(3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as
    filed with the FDIC on April 20, 2001.





 Exhibit Table                                                                                 Exhibit Table
Reference Number                                     Item                                          Number
- ----------------                                     ----                                          ------
                                                                                         
      4.1              Specimen of Common Stock Certificate(1)..........................

      10.1             2000 Stock Option Plan(1)........................................

      10.2             401(k) Plan(3)...................................................

      10.3             Lease for Corporate Headquarters(1)..............................

      10.4             Lease for Western Branch Office(1)...............................

      10.5             Lease for Wilshire Branch Office(1)..............................

      10.6             Lease for Downtown Branch Office(1)..............................

      10.7             Lease for Van Nuys Branch Office(1)..............................

      10.8             Lease for Torrance Branch Office(1)..............................

      10.9             Lease for Rowland Heights Branch Office(1).......................

      11.1             Statement Regarding Computation of Earnings Per Share(4).........

      99.1             Certification of Chief Executive Officer and Chief Financial
                       Officer(1).......................................................


         (b)      Reports on Form 8-K

         The Bank filed no report on Form 8-K during the first quarter of 2003.

- -------------------------

(4) The information required by this exhibit is incorporated herein by reference
    from Note of the Bank's Financial Statements included herein.



                                   SIGNATURES

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

                                         Pacific Union Bank

Date: May 13, 2003             By /s/ Dianne Kim
                                      Dianne Kim
                                      Senior Vice President and Chief Financial
                                      Officer (Principal financial or accounting
                                      officer and duly authorized signatory)

EX-99.3

                                                                    EXHIBIT 99.3

================================================================================

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

- --------------------------------------------------------------------------------

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                          FDIC Certificate Number 21765

                               PACIFIC UNION BANK
             (Exact name of registrant as specified in its charter)



                         CALIFORNIA                                                       95-2888370
                                                                          
State or other jurisdiction of incorporation or organization                 I.R.S. Employer Identification Number


      3530 WILSHIRE BLVD. #1800
       LOS ANGELES, CALIFORNIA                                       90010
Address of principal executive offices                              Zip Code

                                 (213) 385-0909
               Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last
report): Not applicable

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                         Yes    [X]                No    [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                         YES    [ ]                NO    [ ]

         Common stock, $6.00 par value, 10,667,975 shares outstanding as of
August 11, 2003.

================================================================================



                               PACIFIC UNION BANK

                                TABLE OF CONTENTS



                                                                                        Page No.
                                                                                     
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements (Unaudited)

                  Balance Sheets  -
                           June 30, 2003 and December 31, 2002

                  Statements of Operations  -
                           Three months and six months ended June 30, 2003 and 2002

                  Statements of Cash Flows -
                           Six months ended June 30, 2003 and 2002

                  Notes to Financial Statements
         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

         Item 3.  Quantitative and Qualitative Disclosure About Market Risk

         Item 4.  Controls and Procedures

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities

         Item 3.  Defaults upon Senior Securities

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

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K

         Signatures

         Certifications




                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               PACIFIC UNION BANK
                                 Balance Sheets
                    As of June 30, 2003 and December 31, 2002
                                   (Unaudited)



                                                                          JUNE 30, 2003     DECEMBER 31, 2002
                                                                          -------------     -----------------
                                                                                      
                        ASSETS
Cash and due from banks - demand                                         $    32,292,875     $    24,054,519
Federal funds sold                                                            11,800,000          62,500,000
Due from banks - interest-bearing                                                177,068             210,654
Federal Home Loan Bank Stock                                                   3,626,600           3,537,800
Securities held-to-maturity, at amortized cost (fair value of
         $86,639,664 at June 30, 2003 and $90,798,966 at December 31,
         2002)                                                                85,225,522          89,313,683
Securities available-for-sale, at fair value                                  77,808,699          64,701,421
Loans receivable                                                             778,827,859         683,131,191
      Less allowance for loan losses                                          (9,666,372)         (8,872,995)
                                                                         ---------------     ---------------
              Net loans receivable                                           769,161,487         674,258,196
                                                                         ---------------     ---------------
Loans held for sale                                                            3,557,700                  --
Customers' acceptance liabilities                                              1,936,301             657,760
Bank premises and equipment, net                                               6,187,913           6,610,142
Accrued interest receivable                                                    3,380,170           3,404,574
Deferred tax assets                                                            5,099,556           4,663,046
Income taxes receivable                                                        1,636,542           1,116,038
Other assets                                                                   2,493,435           1,967,404
                                                                         ---------------     ---------------
      Total assets                                                       $ 1,004,383,868     $   936,995,237
                                                                         ===============     ===============

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
      Demand, non-interest-bearing                                       $   251,860,813     $   223,377,195
      Demand, interest-bearing                                                 7,754,628           7,602,024
      Money market and savings                                               171,492,839         170,486,917
      Time certificates of deposit:
              Less than $100,000                                              98,912,357          99,876,831
              $100,000 or more                                               291,464,619         258,652,585
                                                                         ---------------     ---------------
      Total deposits                                                         821,485,256         759,995,552
Other borrowed funds                                                          70,000,000          70,000,000
Acceptance liabilities                                                         1,936,301             657,760
Accrued interest payable                                                       3,492,604           3,140,064
Other liabilities                                                              1,432,132           2,325,902
                                                                         ---------------     ---------------
      Total liabilities                                                      898,346,293         836,119,278
                                                                         ---------------     ---------------

Stockholders' equity:
      Common stock, $6 par value.  Authorized 30,000,000 shares;
              issued and outstanding 10,667,237 shares at June 30,
              2003 and 10,621,554 shares at December 31, 2002                 63,998,599          63,724,507
      Capital surplus                                                         22,295,969          22,174,825
      Retained earnings                                                       19,266,053          14,283,984
      Accumulated other comprehensive income -  unrealized gain
        on securities available-for-sale - net of taxes                          476,954             692,643
                                                                         ---------------     ---------------
              Total stockholders' equity                                     106,037,575         100,875,959
                                                                         ---------------     ---------------
              Total liabilities and stockholders' equity                 $ 1,004,383,868     $   936,995,237
                                                                         ===============     ===============


            See accompanying notes to unaudited financial statements.



                               PACIFIC UNION BANK
                            Statements of Operations
            For the Three and Six Months Ended June 30, 2003 and 2002
                                   (Unaudited)



                                                                 FOR THE THREE MONTHS ENDED     FOR THE SIX MONTHS ENDED
                                                                     2003           2002           2003          2002
                                                                 -----------     ----------    -----------    -----------
                                                                                                  
Interest income:
       Interest and fees on loans                                $10,700,691      9,048,150    $20,639,137     17,794,251
       Dividend on Federal Home Loan Bank stock                       37,008          7,688         80,128         30,515
       Interest on securities held-to-maturity                       744,729         38,983      1,637,114         38,983
       Interest on securities available-for-sale                     678,080      1,566,308      1,351,453      3,379,821
       Interest on Federal funds sold                                238,857        317,162        510,381        602,662
       Other interest income                                           7,540          4,257         16,965          8,333
                                                                 -----------     ----------    -----------    -----------
         Total interest income                                    12,406,905     10,982,549     24,235,178     21,854,565

Interest expense:

       Demand - interest bearing                                       5,212         10,237         11,481         19,773
       Savings and money market                                      654,084        621,662      1,232,532      1,185,989
       Time certificates of deposit:
         Less than $100,000                                          658,353        762,594      1,378,705      1,573,919
         $100,000 or more                                          1,509,673      1,463,150      2,918,992      3,036,104
       Other borrowings                                              604,796         48,391      1,203,119         48,391
                                                                 -----------     ----------    -----------    -----------
         Total interest expense                                    3,432,118      2,906,034      6,744,829      5,864,178

         Net interest income before provision for loan losses      8,974,787      8,076,514     17,490,349     15,990,387

Provision for loan losses                                            300,000        100,000        900,000        200,000
                                                                 -----------     ----------    -----------    -----------
         Net interest income after provision for loan losses       8,674,787      7,976,514     16,590,349     15,790,387
                                                                 -----------     ----------    -----------    -----------

Other income:
       Service charges on deposit accounts                         1,590,996      1,602,036      3,231,111      3,200,664
       Remittance fees                                               245,514        239,426        461,320        452,913
       Letter of credit related fees                                 206,919        209,772        398,727        403,100
       Gain on sale of premises                                           --      1,193,797             --      1,193,797
       Gain on sale of loans                                         351,414             --        780,406             --
       Other operating income                                        423,131        364,539        884,537        897,288
                                                                 -----------     ----------    -----------    -----------
         Total other income                                        2,817,974      3,609,570      5,756,100      6,147,762
                                                                 -----------     ----------    -----------    -----------

Other expenses:
       Salaries and employee benefits                              3,510,686      2,924,851      6,742,671      5,817,712
       Security guards                                               221,684        241,829        440,221        476,033
       Net occupancy expense                                         698,455        729,518      1,395,553      1,451,175
       Equipment expense                                             375,889        380,069        715,636        730,762
       Data processing                                               494,726        511,060        966,108        959,208
       Net other real estate owned expense                                --             --             --             41
       Office supplies                                               123,155        139,348        199,257        254,700
       Legal and professional                                        236,904        274,691        415,160        692,612
       Advertising and public relations                              204,003        237,076        356,604        364,964
       Communication related expense                                 254,320        249,540        517,056        492,077
       Other operating expenses                                      749,864        572,727      1,405,492      1,073,748
                                                                 -----------     ----------    -----------    -----------
         Total other expenses                                      6,869,686      6,260,709     13,153,758     12,313,032
                                                                 -----------     ----------    -----------    -----------
         Income before income taxes                                4,623,075      5,325,375      9,192,691      9,625,117

Income taxes                                                       1,829,000      2,127,000      3,678,000      3,846,000
                                                                 -----------     ----------    -----------    -----------
         Net income                                              $ 2,794,075      3,198,375    $ 5,514,691      5,779,117
                                                                 ===========     ==========    ===========    ===========

Net income per share:
           Basic                                                 $      0.26           0.30    $      0.52    $      0.54
           Diluted                                               $      0.26           0.30    $      0.52    $      0.54

Weighted-average common shares outstanding:
           Basic                                                  10,646,089     10,613,277     10,633,889     10,610,513
           Diluted                                                10,711,173     10,708,605     10,700,269     10,700,262


                 See accompanying notes to financial statements



                               PACIFIC UNION BANK
                            Statements of Cash Flows
                 For the Six Months Ended June 30, 2003 and 2002
                                   (Unaudited)



                                                                                           06/30/2003        06/30/2002
                                                                                           ----------        ----------
                                                                                                     
Cash flows from operating activities:
    Net income                                                                           $   5,514,691     $   5,779,117
    Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation and amortization expenses                                                  616,299           705,674
       Provision for loan losses                                                               900,000           200,000
       Accretion of discount and amortization of premium
          on securities held-to-maturity, net                                                 (290,332)           (5,506)
       Accretion of discount and amortization of premium
          on securities available-for-sale, net                                               (656,118)           96,815
       Net loss (gain) on disposal of Bank premises and equipment                                9,943        (1,200,897)
       Gain on sale of loans                                                                  (780,406)               --
       Origination of loans held for sale                                                  (12,974,299)               --
       Proceeds from sale of loans held for sale                                            13,913,727                --
       Decrease (Increase) in accrued interest receivable                                       24,404          (326,140)
       Increase in prepaid income taxes                                                       (520,504)               --
       (Increase) decrease in deferred income taxes                                           (280,001)          294,439
       Increase in income taxes receivable                                                          --          (985,517)
       Stock dividend on Federal Home Loan Bank stock                                          (88,800)          (43,600)
       Increase in other assets                                                               (526,031)         (449,165)
       Increase (decrease) in accrued interest payable                                         352,540        (1,828,013)
       (Decrease) increase in other liabilities                                               (893,770)          665,369
                                                                                         -------------     -------------
                   Net cash provided by operating activities                                 4,321,343         2,902,576
                                                                                         -------------     -------------

Cash flows from investing activities:
    Proceeds from maturities and redemptions of securities held-to-maturity                 29,343,627                --
    Proceeds from maturities and redemptions of securities available-for-sale               55,041,083        37,497,386
    Purchase of securities held-to-maturity                                                (24,965,134)      (45,419,151)
    Purchase of securities available-for-sale                                              (67,864,441)       (3,500,000)
    Proceeds from recoveries of written-off loans                                              299,637            76,854
    Net increase in loans                                                                  (99,819,651)      (16,822,001)
    Purchases of Bank premises and equipment                                                  (204,013)         (504,319)
    Proceeds from sale of Bank premises and equipment                                               --         3,575,300
                                                                                         -------------     -------------
                   Net cash used in investing activities                                  (108,168,892)      (25,391,825)
                                                                                         -------------     -------------

Cash flows from financing activities:
    Net increase in demand deposits, non-interest-bearing                                   28,483,618         8,634,641
    Net increase in demand deposits, interest-bearing                                          152,604           560,019
    Net increase (decrease) in money market and savings deposits                             1,005,922        (5,924,384)
    Net increase in time certificates of deposit                                            31,847,560         1,351,324
    Proceeds from exercise of stock options                                                    395,236           148,248
    Cash dividend paid                                                                        (532,623)               --
    Cash paid for fractional shares                                                                 --              (425)
    Net increase in other borrowed funds                                                            --        30,000,000
                                                                                         -------------     -------------
                   Net cash provided by financing activities                                61,352,317        34,767,423
                                                                                         -------------     -------------
                   Net (decrease) increase in cash and cash equivalents                    (42,495,230)       12,574,068
Cash and cash equivalents at beginning of period                                            86,765,173        68,073,953
                                                                                         -------------     -------------
Cash and cash equivalents at end of period                                               $  44,269,943        80,648,021
                                                                                         =============     =============

Supplemental disclosures of cash flow information:

    Cash paid during the period for:
       Interest                                                                          $   6,392,288         7,692,191
       Income taxes                                                                      $   5,450,000         4,330,000
                                                                                         =============     =============
    Noncash investing and financing activities:
       Transfers of loan receivables to loans held for sale                              $   3,557,000                --
       Stock dividend                                                                    $          --        13,070,291


            See accompanying notes to unaudited financial statements.



                               PACIFIC UNION BANK
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying unaudited interim financial statements of Pacific
Union Bank ("Bank") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United State of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003.

2.       COMPREHENSIVE INCOME

         Comprehensive income consists of net income and net unrealized gain
(loss) on securities available-for-sale. The comprehensive income amounted to
$5.3 million, which included net income of $5.5 million and decrease in
unrealized gain of $215,689, which is net of the tax effect of $156,509 for the
six months ended June 30, 2003. The comprehensive income amounted to $6.6
million which included net income of $5.8 million and change in unrealized gain
of $822,000, which is net of the tax effect of $804,000 for the six months ended
June 30, 2002.

3.       EARNINGS PER SHARE

         The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation for the three months ended June 30,
2003 and 2002.



                                                 INCOME        SHARES      PER SHARE
2003                                           (NUMERATOR)  (DENOMINATOR)   AMOUNT
- ----                                           -----------  -------------   ------
                                                                  
Basic EPS -
    Income available to common stockholders    $2,794,075    10,646,089    $   0.26

Effect of Dilutive Securities -
    Options                                            --        65,084          --
                                               ----------    ----------    --------
Diluted EPS -
    Income available to common stockholders    $2,794,075    10,711,173    $   0.26
                                               ==========    ==========    ========




                                                 INCOME         SHARES    PER SHARE
2002                                           (NUMERATOR)  (DENOMINATOR)   AMOUNT
- ----                                           -----------  -------------   ------
                                                                 
Basic EPS -
    Income available to common stockholders    $3,198,375    10,613,277    $   0.30

Effect of Dilutive Securities -
    Options                                            --        95,328          --
                                               ----------    ----------    --------
Diluted EPS -
    Income available to common stockholders    $3,198,375    10,708,605    $   0.30
                                               ==========    ==========    ========




         The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation for the six months ended June 30,
2003 and 2002.



                                                 INCOME        SHARES      PER SHARE
2003                                           (NUMERATOR)  (DENOMINATOR)   AMOUNT
- ----                                           -----------  -------------   ------
                                                                  
Basic EPS -
    Income available to common stockholders    $5,514,691    10,633,889       0.52

Effect of Dilutive Securities -
    Options                                            --        66,380         --
                                               ----------    ----------       ----
Diluted EPS -
    Income available to common stockholders    $5,514,691    10,700,269       0.52
                                               ==========    ==========       ====




                                                 INCOME         SHARES     PER SHARE
2002                                           (NUMERATOR)  (DENOMINATOR)   AMOUNT
- ----                                           -----------  -------------   ------
                                                                  
Basic EPS -
    Income available to common stockholders    $5,779,117    10,610,513    $   0.54

Effect of Dilutive Securities -
    Options                                            --        89,749          --
                                               ----------    ----------    --------
Diluted EPS -
    Income available to common stockholders    $5,779,117    10,700,262    $   0.54
                                               ==========    ==========    ========


4.       CAPITAL TRANSACTIONS

         The Bank's outstanding number of shares was 10,667,237 at June 30,
2003. The Bank has declared a quarterly cash dividend of $0.05 per common share
on July 24, 2003. The cash dividend will be paid on or about August 27, 2003 to
all shareholders of record as of August 15, 2003.

5.       STOCK OPTIONS

         Had compensation cost for the Bank's stock option plan been determined
based on the fair values at the grant dates for awards under the plan consistent
with the fair value method of SFAS No. 123, the Bank's net income and earnings
per share for the six months ended June 30, 2003 and June 30, 2002 would have
been reduced to the pro forma indicated below.



                          FOR THE THREE MONTHS ENDED         FOR THE SIX MONTHS ENDED
                        JUNE 30, 2003    JUNE 30, 2002    JUNE 30, 2003    JUNE 30, 2002
                        ---=---------    -------------    -------------    -------------
                                                               
Net Income:
   As reported          $   2,794,075    $   3,198,375    $   5,514,691    $   5,779,117
   Pro-forma                2,783,583        3,187,805        5,494,027        5,754,858

Earnings per share:
   As reported:
     Basic              $        0.26    $        0.30    $        0.52    $        0.54
     Diluted                     0.26             0.30             0.52             0.54

   Pro-forma:
     Basic              $        0.26    $        0.30    $        0.52    $        0.54
     Diluted                     0.26             0.30             0.51             0.54


6.       RECENT ACCOUNTING PRONOUNCEMENTS

         In November 2002, FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an Interpretation of FASB No. 5, 57, and 107 and



Rescission of FASB Interpretation No. 34, (FIN No. 45) was issued. FIN No. 45
clarifies requirements relating to the guarantor's accounting for, and
disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires
that upon issuance of a guarantee, companies recognize a liability for the fair
value of the obligation it assumes under that guarantee. The Company has adopted
the annual disclosure provisions of FIN No. 45 in the year ended December 31,
2002 consolidated financial statements. The adoption of FIN 45 did not have a
material impact on the Bank's financial statements.

         In October 2002, Statement of Financial Accounting No. 147,
Acquisitions of Certain Financial Institutions (SFAS No. 147). SFAS No. 147
applies to all acquisitions of financial institutions except those between
mutual enterprises. This Statement amends FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope
long-term customer-relationship intangible assets of financial institutions such
as depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used. The provisions of this Statement relating to the
application of the purchase method of accounting, was effective for acquisitions
for which the date of acquisition is on or after October 1, 2002. The provisions
of this Statement relating to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets were effective on
October 1, 2002. Transition provisions for previously recognized unidentifiable
intangible assets were effective on October 1, 2002, with earlier application
permitted. The adoption of FASB No. 147 did not have a material effect on the
financial statements.

         In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation ( SFAS No. 123 ), to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in not only annual, but also interim financial statements about the effect the
fair value method would have had on reported results. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure requirements are effective for
interim periods beginning after December 15, 2002. It is anticipated that the
financial impact of SFAS 148 will not have a material effect on the Bank.

         In January 2003, The Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation
addresses consolidation by business enterprises of variable interest entities
and clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. Certain disclosures are
effective immediately. The adoption of FIN No. 46 is not expected to have a
material effect on the financial statements.

         In April, 2003, The Financial Accounting Standards No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149")
was issued. SFAS No. 149 clarifies and amends financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). In general, SFAS 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. It is anticipated that the financial impact of
SFAS 149 will not have a material effect on the Bank.

         In May, 2003, Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150") was issued. FASB No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity that have been
presented either entirely as equity or between the liabilities section and the
equity section of the statement of financial position. SFAS 150 is effective for
financial instruments entered into or modified after May 31,



2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is anticipated that the financial impact of
SFAS 150 will not have a material effect on the Bank.

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

         The following discussion and analysis includes forward-looking
statements regarding management's beliefs, projections and assumptions
concerning future results and events. When used the words "anticipate",
"believe", "estimate", "expect", and "intend" and words or phrases of similar
meanings as they relate to the Bank or the Bank's management, are intended to
identify forward-looking statements. These statements are not guarantees and
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Bank to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, governmental
policies and actions of regulatory agencies, costs associated with the Bank's
future expansion, competition from other commercial banks and other competition
and market and general economic factors. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on any forward-looking
statements, which speak as of the date hereof. All forward-looking statements
contained in this Form 10-Q are qualified in their entirety by this cautionary
statement.

         The following discussion and analysis is intended to provide details of
the results of operations of the Bank for the three months and six months ended
June 30, 2003 and 2002 and financial condition at June 30, 2003 and at December
31, 2002. The following discussion should be read in conjunction with Annual
Report on Form 10-K/A for the year ended December 31, 2002 filed with the
Federal Deposit Insurance Corporation in particular as it relates to the
critical accounting policies as discussed in item 14 of the Form 10-K/A.

RESULTS OF OPERATIONS

         Net income for the quarter ended June 30, 2003 decreased by $404,300 or
12.6% to $2.8 million compared to $3.2 million for the same period in 2002 which
included one time gain on sale of San Francisco premises of $1.2 million in June
2002. Diluted earnings per share decreased by 13.3% to $0.26 for the three
months ended June 30, 2003 compared with $0.30 for the second quarter of 2002.
Income before income tax expense amounted to $4.6 million for the second quarter
of 2003, a decrease of $702,000 or 13.2% compared to $5.3 million for the same
quarter a year ago.

         The annualized return on average assets ("ROA") and return on average
stockholders' equity ("ROE") were 1.10% and 10.73%, respectively, for the second
quarter of 2003, compared to 1.58% and 13.83%, respectively, for the same period
of 2002.

         Net Income decreased by $ 264,000 or 4.6 % to $5.5 million for the six
months ended June 30, 2003 compared to $5.8 million for the same period of 2002.
Diluted earnings per share decreased to $0.52 for the six months ended June 30,
2003 compared to $0.54 for the same period of 2002. Income before income tax
expense amounted to $9.2 million and $9.6 million, respectively, for the six
months ended June 30, 2003 and 2002. The annualized ROA and ROE for the first
six months ended June 30, 2003 were 1.11% and 10.72%, respectively, compared to
1.43% and 12.70%, respectively, for the same period of 2002.

NET INTEREST INCOME

         The Bank's primary source of income is net interest income, which is
the difference between interest income from interest-bearing assets and interest
paid on interest-bearing liabilities, such as deposits and other borrowings used
to fund those assets. The Bank's net interest income is affected by changes in
the volume of interest-earning assets and interest-bearing liabilities as well
as by changes in yield earned on interest-earning assets and rates paid on
interest-bearing liabilities. The Bank also generates non-interest income,
including the service charges on deposit accounts and other transactional fees.
The Bank's non-interest expenses consist primarily of personnel, occupancy and
equipment expense and other operating expenses. The Bank's results of operations
are affected by its provision for loan losses and may also be significantly
affected by other factors including general economic and competitive conditions,
changes in market interest rates, governmental policies and actions of
regulatory agencies.



         Net interest income before the provision for the loan losses increased
by $898,000 or 11.1% to $9.0 million in the second quarter of 2003, compared to
$8.1 million in the same quarter of 2002. Total interest income increased by
$1.4 million or 13.0% to $12.4 million in the second quarter of 2003, compared
to $11.0 million in the same quarter of 2002 primarily due to an increase of
$1.7 million in interest and fees on loans and partially offset by a $182,000
decrease in interest on investment securities.

         The increase in interest income is contributed by the average volume
increase of $192.5 million in interest earning-assets to $972.5 million in the
second quarter of 2003 from $763.3 million in the same quarter of 2002. The
major increase of the interest earning-assets is contributed by the average loan
growth of $173.3 million or 30.4% to $743.9 million in the second quarter of
2003 compared to $570.6 million for the corresponding quarter of 2002. The yield
on average interest earning-assets was 5.05% in the second quarter of 2003
compared to 5.70% in the same quarter of 2002. Offsetting the increase in
average net loans, the yield on average loans including loans held for sale
decreased by 58 basis points to 5.69% in the second quarter of 2003 from 6.27%
in the same quarter of 2002, which negatively affected the loan interest income.

          Total interest expense increased by $526,000 or 18.1% to $3.4 million
for the second quarter of 2003 compared to $2.9 million for the same quarter of
2002. The increase is mainly due to an increased interest expense of $556,000
from Federal Home Loan Bank borrowings in the second quarter of 2003 compared to
zero for the correspondent quarter of 2002. Average money market deposits
increased $64.4 million or 58.8% to $173.8 million in the second quarter of 2003
compared with $109.4 million for the corresponding period of 2002. The cost of
money market deposits decreased 46 basis points to 1.44% for the second quarter
of 2003 from 1.99% for the corresponding period of 2002. Average time
certificates of deposit of $100,000 or more increased $30.9 million or 12.9% to
$270.7 million in the second quarter of 2003 compared with $239.8 million for
the corresponding period of 2002. The cost on average time certificates of
deposit of $100,000 or more decreased 21 basis points to 2.24% in the first
quarter of 2003 from 2.45% in the corresponding quarter of 2002. The cost of
funds decreased 11 basis points to 1.52% in the second quarter of 2003 compared
with 1.63% in the same quarter of 2002.

         Net interest income before provision for loan losses increased $1.5
million or 9.4% to $17.5 million for the six months ended June 30, 2003 compared
to $16.0 million for the same period of 2002. Total interest income increased by
$2.4 million or 10.9% to $24.2 million for the six months ended June 30, 2003
compared with $21.9 million in the same period in 2002. The increase in total
interest income was primarily due to a $2.8 million increase in interest on
loans and partially offset by a $430,000 decrease in interest on investment
securities. The average net loans including loans held for sale for the first
six months of 2003 increased by $153.9 million to $717.9 million compared with
$564.0 million for the same period of 2002.

         Total interest expense increased by $881,000 or 15.0% to $6.7 million
for the six months ended June 30, 2003, compared with $5.9 million for the
corresponding period of 2002. The increase was primarily attributable to a $1.2
million increase in interest on Federal Home Loan Bank advances. The average
balance of Federal Home Loan Bank advances increased to $70.0 million in the
first six months of 2003 compared to zero in the same period of 2002.

NET INTEREST MARGIN

         Net interest margin decreased by 54 basis points or 12.77% to 3.69% for
the second quarter of 2003 compared to 4.23% for the corresponding period of
2002. The decrease in net interest margin was primarily attributable to the
decrease in the average interest-earning assets yield of 65 basis points to
5.05% in the second quarter of 2003 compared with 5.70% in the same quarter of
2002. The decrease in the average interest-earning assets yield was offset by
the cost of funds decrease of 11 basis points to 1.52% in the second quarter of
2003 from 1.63% in the corresponding quarter of 2002.

         Net interest margin decreased by 53 basis points or 12.62% to 3.67% for
the six months ended June 30, 2003 compared to 4.20% for the corresponding
period of 2002. The decrease in net interest margin was primarily attributable
to the decrease in the average interest-earning assets yield of 66 basis points
to 5.06% in the second quarter of 2003 compared with 5.72% in the same quarter
of 2002. The decrease in the average interest-earning assets yield was offset by


the cost of funds decrease of 11 basis points to 1.52% in the second quarter of
2003 from 1.63% in the corresponding quarter of 2002.

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

               DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME



                                                             For the Three Months Ended
                                                                  June 30, 2003
                                             --------------------------------------------------------
                                                                             Average          % to
                                               Average        Income/         Rate/         Earning
                                               Balance        Expense       Yield(35)        Assets
                                             --------------------------------------------------------
                                                                              
ASSETS:
Interest-earning assets:
Loans, net(36)                               $   743,907    $    10,701           5.69%         76.49%
Federal Home Loan Bank stock                       3,604             37           4.11%          0.37%
Taxable investment securities(37)
    U.S. Treasury Securities                       3,751             23           2.45%          0.39%
    U.S. Governmental Agencies                   137,111          1,400           4.08%         14.10%
Tax-exempt  Investment Securities:
    State & Municipal Obligation                       0              0
Federal funds sold                                80,833            239           1.17%          8.31%
Interest-earning deposits                          3,300              7           0.85%          0.34%
                                             -----------    -----------                   -----------
Total interest-earning assets                    972,506         12,407           5.05%        100.00%
                                             -----------    -----------                   -----------
Non-interest-earning assets:
Cash and due from banks                           23,655
Premises and equipment, net                        6,273
Other real estate owned                                0
Customers' acceptance liabilities                  1,611
Accrued interest receivable                        3,220
Other assets                                       9,569
                                             -----------
Total non-interest-earning assets                 44,328
                                             -----------
Total assets                                 $ 1,016,834
                                             ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                             $   173,779    $       625           1.44%
    Super NOW                                      7,411              5           0.27%
    Savings                                       46,127             29           0.25%
    Time certificates of deposit of
      $100,000 or more                           270,693          1,510           2.24%
    Other time certificates of deposit           105,720            658           2.50%
Other borrowings                                  70,000            605           3.42%
                                             -----------    -----------
Total interest-bearing liabilities               673,730          3,432           2.04%
                                             -----------    -----------
Non-interest-bearing liabilities:
Demand deposits                                  231,786
Other liabilities                                  7,206
                                             -----------
Total non-interest-bearing liabilities           238,992                          1.52%
                                             -----------
Stockholders' equity                             104,112
                                             -----------
Total liabilities and stockholders' equity   $ 1,016,834
                                             ===========
Net interest income                                         $     8,975
                                                            ===========
Net interest spread(38)                                                           3.01%
                                                                           ===========
Annualized net interest margin(39)                                                3.69%
                                                                           ===========
Ratio of average interest-bearing assets
  to average interest-bearing liabilities                                       144.35%
                                                                           ===========


                                                              For the Three Months Ended
                                                                    June 30, 2002
                                             --------------------------------------------------------
                                                                             Average          % to
                                               Average        Income/         Rate/          Earning
                                               Balance        Expense        Yield(1)        Assets
                                             --------------------------------------------------------
                                                                              
ASSETS:
Interest-earning assets:
Loans, net(36)                               $   570,632          9,048           6.27%         74.76%
Federal Home Loan Bank stock                       1,536              8           2.08%          0.20%
Taxable investment securities(37)
    U.S. Treasury Securities                       1,475             22           5.97%          0.19%
    U.S. Governmental Agencies                   113,282          1,581           5.58%         14.84%
Tax-exempt  Investment Securities:
    State & Municipal Obligation                     197              2           4.06%          0.03%
Federal funds sold                                74,990            317           1.67%          9.83%
Interest-earning deposits                          1,142              4           1.40%          0.15%
                                             -----------    -----------                   -----------
Total interest-earning assets                    763,254         10,982           5.70%        100.00%
                                             -----------    -----------                   -----------
Non-interest-earning assets:
Cash and due from banks                           28,925
Premises and equipment, net                        8,548
Other real estate owned                                0
Customers' acceptance liabilities                  1,243
Accrued interest receivable                        3,271
Other assets                                       5,198
                                             -----------
Total non-interest-earning assets                 47,185
                                             -----------
Total assets                                 $   810,439
                                             ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                             $   109,402    $       543           1.99%
    Super NOW                                      7,070             10           0.57%
    Savings                                       42,158             79           0.75%
    Time certificates of deposit of
      $100,000 or more                           239,822          1,463           2.45%
    Other time certificates of deposit           100,172            763           3.06%
Other borrowings                                   5,084             48           3.74%
                                             -----------    -----------
Total interest-bearing liabilities               503,708          2,906           2.31%
                                             -----------    -----------
Non-interest-bearing liabilities:
Demand deposits                                  209,264
Other liabilities                                  4,991
                                             -----------
Total non-interest-bearing liabilities           214,255                          1.63%
                                             -----------
Stockholders' equity                              92,476
                                             -----------
Total liabilities and stockholders' equity   $   810,439
                                             ===========
Net interest income                                         $     8,076
                                                            ===========
Net interest spread(38)                                                           3.39%
                                                                           ===========
Annualized net interest margin(39)                                                4.23%
                                                                           ===========
Ratio of average interest-bearing assets
  to average interest-bearing liabilities                                       151.53%
                                                                           ===========


- ----------
(35) Average rates/yields for these periods have been annualized.

(36) Loan includes loans held for sale and net of the allowance for loan losses,
deferred fees and related direct costs. Non-accrual loans are included in the
table for computation purposes, but the foregone interest of such loans is
excluded. Loan fees were $769,161 and $579,432 at June 30, 2003 and 2002.

(37) Yields on tax-exempt income have not been computed on a tax equivalent
basis because tax-exempt securities are minimal.

(38) Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.

(39) Represents net interest income as a percentage of average interest-earning
assets.



              DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME



                                                              For the Six Months Ended
                                                                   June 30, 2003
                                             --------------------------------------------------------
                                                                             Average          % to
                                               Average        Income/         Rate/         Earning
                                               Balance        Expense       Yield(40)        Assets
                                             --------------------------------------------------------
                                                                              
ASSETS:
Interest-earning assets:
Loans, net(41)                               $   717,856    $    20,639           5.72%         75.30%
Federal Home Loan Bank stock                       3,571             80           4.48%          0.37%
Taxable investment securities(42)

    U.S. Treasury Securities                       3,050             41           2.69%          0.32%
    U.S. Governmental Agencies                   140,542          2,948           4.20%         14.74%
Tax-exempt Investment Securities:
    State & Municipal Obligation                       0              0
Federal funds sold                                84,575            510           1.20%          8.87%
Interest-earning deposits                          3,697             17           0.93%          0.39%
                                             -----------    -----------                   -----------
Total interest-earning assets                    953,291         24,235           5.03%        100.00%
                                             -----------    -----------                   -----------
Non-interest-earning assets:
Cash and due from banks                           23,798
Premises and equipment, net                        6,387
Other real estate owned                                0
Customers' acceptance liabilities                  1,106
Accrued interest receivable                        3,214
Other assets                                       9,517
                                             -----------
Total non-interest-earning assets                 44,022
                                             -----------
Total assets                                 $   997,313
                                             ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                             $   165,320    $     1,176           1.43%
    Super NOW                                      7,563             11           0.29%
    Savings                                       45,752             57           0.25%
    Time certificates of deposit of
      $100,000 or more                           262,790          2,919           2.24%
    Other time certificates of deposit           106,640          1,379           2.61%
Other borrowings                                  70,015          1,203           3.42%
                                             -----------    -----------
Total interest-bearing liabilities               673,730          6,745           2.07%
                                             -----------    -----------
Non-interest-bearing liabilities:
Demand deposits                                  229,508
Other liabilities                                  6,842
                                             -----------
Total non-interest-bearing liabilities           236,350                          1.53%
                                             -----------
Stockholders' equity                             102,883
                                             -----------
Total liabilities and stockholders' equity   $   997,313
                                             ===========
Net interest income                                         $    17,490
                                                            ===========
Net interest spread(43)                                                           2.99%
                                                                           ===========
Annualized net interest margin(44)                                                3.67%
                                                                           ===========
Ratio of average interest-bearing assets
  to average interest-bearing liabilities                                       144.86%
                                                                           ===========


                                                             For the Six Months Ended
                                                                  June 30, 2002
                                             --------------------------------------------------------
                                                                             Average          % to
                                               Average        Income/         Rate/          Earning
                                               Balance        Expense        Yield(1)        Assets
                                             --------------------------------------------------------
                                                                              
ASSETS:
Interest-earning assets:
Loans, net(41)                               $   563,966        917,794           6.28%         74.12%
Federal Home Loan Bank stock                       1,524             30           3.94%          0.20%
Taxable investment securities(42)

    U.S. Treasury Securities                       1,492             45           6.03%          0.20%
    U.S. Governmental Agencies                   120,815          3,370           5.58%         15.88%
Tax-exempt Investment Securities:
    State & Municipal Obligation                     198              4           3.88%          0.03%
Federal funds sold                                71,744            603           1.67%          9.43%
Interest-earning deposits                          1,102              8           1.46%          0.14%
                                             -----------    -----------                   -----------
Total interest-earning assets                    760,841         21,854           5.72%        100.00%
                                             -----------    -----------                   -----------
Non-interest-earning assets:
Cash and due from banks                           26,985
Premises and equipment, net                        8,928
Other real estate owned                                0
Customers' acceptance liabilities                    915
Accrued interest receivable                        3,332
Other assets                                       4,731
                                             -----------
Total non-interest-earning assets                 44,891
                                             -----------
Total assets                                 $   805,732
                                             ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                             $   111,484    $     1,029           1.86%
    Super NOW                                      7,093             20           0.57%
    Savings                                       42,255            159           0.75%
    Time certificates of deposit of
      $100,000 or more                           239,695          3,036           2.55%
    Other time certificates of deposit           101,909          1,574           3.11%
Other borrowings                                   2,556             48           3.74%
                                             -----------    -----------
Total interest-bearing liabilities               504,992          5,864           2.34%
                                             -----------    -----------
Non-interest-bearing liabilities:
Demand deposits                                  204,112
Other liabilities                                  5,613
                                             -----------
Total non-interest-bearing liabilities           209,725                          1.67%
                                             -----------
Stockholders' equity                              91,015
                                             -----------
Total liabilities and stockholders' equity   $   805,732
                                             ===========
Net interest income                                         $    15,990
                                                            ===========
Net interest spread(43)                                                           3.38%
                                                                           ===========
Annualized net interest margin(44)                                                4.20%
                                                                           ===========
Ratio of average interest-bearing assets
  to average interest-bearing liabilities                                       150.66%
                                                                           ===========


- ----------
(40) Average rates/yields for these periods have been annualized.

(41) Loan includes loans held for sale and net of the allowance for loan losses,
     deferred fees and related direct costs. Non-accrual loans are included in
     the table for computation purposes, but the foregone interest of such loans
     is excluded. Loan fees were $769,161 and $579,432 at June 30, 2003 and
     2002.

(42) Yields on tax-exempt income have not been computed on a tax equivalent
     basis because tax-exempt securities are minimal.

(43) Represents the average rate earned on interest-earning assets less the
     average rate paid on interest-bearing liabilities.

(44) Represents net interest income as a percentage of average interest-earning
     assets.



         The following table sets forth, for the years 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 changes in
average daily balances (volume) or changes in interest rates (rate). The
variances attributable to both the volume and rate changes have been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amount of the changes in each:



                                                    FOR THE SIX MONTH ENDED
                                                             JUNE 30,
                                                           2003 VS. 2002
                                                       INCREASES (DECREASES)
                                                          DUE TO CHANGE IN
                                                    VOLUME    RATE(1)     TOTAL
                                                   -------    -------    -------
                                                       (DOLLARS IN THOUSANDS)
                                                                
EARNING ASSETS:
INTEREST INCOME:                                   $ 4,530     (1,685)     2,845
     Loans, net(2)............................
     Federal Home Loan Bank stock.............          45          5         50
     Taxable investment securities:
         U. S. Treasury securities............          30        (34)        (4)
         U. S. Government agencies............         496       (918)      (422)
     Tax-exempt securities:(3)
         State and Municipal Obligation.......          (4)         -         (4)
     Federal funds sold.......................          96       (189)       (93)
     Interest-earning deposits................          13         (4)         9
                                                   -------    -------    -------
              Total net change
                  in interest income..........     $ 5,206    ($2,825)   $ 2,381
                                                   -------    -------    -------
DEPOSITS AND BORROWED FUNDS:
INTEREST EXPENSE:
     Money market deposits....................         420       (273)       147
     Super NOW................................           1        (10)        (9)
     Savings deposits.........................          12       (112)      (100)
     Time certificates of deposit in
         denominations of $100,000
          or more.............................         277       (394)      (117)
     Other time deposits......................          70       (265)      (195)
     Other borrowings.........................       1,159         (4)     1,155
                                                   -------    -------    -------
              Total net change
                  in interest expense.........       1,939     (1,058)       881
                                                   -------    -------    -------
Change in net interest income.................     $ 3,267    ($1,767)   $ 1,500
                                                   =======    =======    =======


PROVISION FOR LOAN LOSSES

         Provisions for loan losses are made monthly, to cover incurred losses
as a result of credit risks. Credit risk is inherent in making loans. The Bank
sets aside an allowance for loan losses through charges to earnings. The charges
are reflected in the income statement as the provision for loan losses.
Specifically, the provision for loan losses represents the amount charged
against current period earnings to achieve an allowance for loan losses that in
Management's judgment is adequate to absorb incurred losses inherent in the
Bank's loan portfolio.

         For the second quarter of 2003 the provision for loan losses amounted
to $300,000 compared with $100,000 in the corresponding period of 2002. The
Provision for loan losses amounted to $900,000 for the six months ended June 30,
2003 compared with $200,000 for the same period of 2002. The increase was mainly
attributable to a strong loan growth in the second quarter of 2003. On a
quarterly basis, management performs an analysis of the adequacy of the
allowance for loan losses. The results of this analysis for the quarter ended
June 30, 2003 determined that the allowance was adequate to cover losses
inherent in the portfolio. The procedures for monitoring the adequacy of the

- --------------
(1) Rates for these periods on which calculations are based have been
annualized.

(2) Loan fees net of direct cost have been included in the calculation of
interest income. Loan fees were $384,000 and $279,000 for the six months ended
June 30, 2003 and 2002, respectively. Loans are net of the allowance for loan
losses, deferred fees and related direct costs.

(3) Yields on tax-exempt income have not been computed on a tax equivalent
basis, because the percentage of tax-exempt securities is minimal.



allowance, as well as detailed information concerning the allowance itself, are
included below under "Allowance for loan losses."

NON-INTEREST INCOME

         Non-interest income decreased $792,000 or 21.93% to $2.8 million in the
second quarter of 2003 compared to $3.6 million in the same quarter of 2002. The
decrease resulted mainly from a $1.2 million gain recognized from the sale of
San Francisco premises in the second quarter of 2002 and was partially offset by
an increase of $351,000 on the sale of SBA loans in the second quarter of 2003.
The other operating income increased by $59,000. The other operating income
consists of credit card related fees, mortgage loan related fees, merchant
discount fees, remittance and cable fees and other various fees.

         Non-interest income decreased $392,000 or 6.38% to $5.8 million in the
six months of 2003 compared to $6.1 million in the same period of 2002. The
decrease resulted mainly from a $1.2 million gain recognized from the sale of
San Francisco premises during the first half of 2002 and was partially offset by
an increase of $780,000 on the sale of SBA loans in the same period of 2003. The
Bank is planning to continue to originate and sell the guaranteed portion of SBA
loans in 2003.

         The following table sets forth the various components of the Bank's
non-interest income for the periods indicated:



 NON-INTEREST INCOME



                                                (Dollars in thousands)

                                       Three Months Ended    Increase (Decrease)
                                      -------------------   --------------------
                                      06/30/03   06/30/02    Amount     Percent(%)
                                      --------   --------   --------    --------
                                                            
Service charges on deposit accounts   $  1,591   $  1,602   $    (11)      (0.69)%
Remittance fees                            246        239          7        2.93
Letter of credit related fees              207        210         (3)      (1.43)
Gain on sale of loans                      351         --        351         NMV
Gain on sale of premise                     --      1,194     (1,194)        NMV
Other operating income                     423        365         58       15.89
                                      --------   --------   --------    --------
        Total                         $  2,818   $  3,610   $   (792)      21.94%
                                      ========   ========   ========    ========




                                        Six Months Ended     Increase (Decrease)
                                      -------------------   --------------------
                                      06/30/03   06/30/02    Amount     Percent(%)
                                      --------   --------   --------    --------
                                                            
Service charges on deposit accounts   $  3,231   $  3,201   $     30        0.94%
Remittance fees                            461        453          8        1.77
Letter of credit related fees              399        403         (4)       0.99
Gain on sale of loans                      780         --        780         NMV
Other operating income                     885        897        (12)      (1.34)
Gain on sale of premises                    --      1,194     (1,194)        NMV
                                      --------   --------   --------    --------
        Total                         $  5,756   $  6,148   $   (392)       6.38%
                                      ========   ========   ========    ========


NON-INTEREST EXPENSE

         Non-interest expense increased by $609,000 or 9.73% to $6.9 million in
the second quarter of 2003, compared to $6.3 million in the corresponding
quarter of 2002. The increase is mainly attributable to an increase of $586,000
in salaries and employee benefits and a $177,000 increase in other expenses
offset by decreases in legal and professional expenses by $38,000 and
advertising and public relations by $33,000. An increase in salaries and
employee benefits was mainly attributable to the increase in number of
employees, medical expenses and annual bonus accrual for 2003. The decrease in
the legal and professional expenses was mainly due to reduced consulting
expenses associated with an enterprise-wide risk management implementation which
peaked in early 2002. Other operating expenses consist of other loan related
expenses, regulatory assessment expenses, employee related fees and other
outside fees. The efficiency ratio for the second quarter of 2003 was 58.25%
compared to 53.57% for the corresponding quarter of 2002.

         Non-interest expense increased by $841,000 or 6.83% to $13.2 million
for the six months ended June 30, 2003, compared to $12.3 million in the
corresponding period of 2002. The increase is mainly attributable to an increase
of $925,000 in salaries and employee benefits and an increase of $332,000 in
other operating expenses. The increase in salaries and employee benefits mainly
resulted from the increases in number of employees, medical expenses and annual
bonus accrual for 2003. The efficiency ratio for the six months of 2003 was
56.58% compared to 55.62% for the corresponding period of 2002.



         The following table presents the components of the non-interest expense
with the amount and percentage changes for the periods indicated:



                                               NON-INTEREST EXPENSE
                                              (Dollars in thousands)

                                   Three Months Ended    Increase / (Decrease)
                                   -------------------   --------------------
                                   06/30/03   06/30/02    Amount     Percent (%)
                                   --------   --------   --------    --------
                                                         
Salaries and employee benefits     $  3,511   $  2,925   $    586       20.03%
Security guards                         222        242        (20)      (8.33)
Net occupancy expense                   698        729        (31)      (4.25)
Equipment expense                       376        380         (4)      (1.10)
Data processing                         495        511        (16)      (3.20)
Office supplies                         123        139        (16)     (11.62)
Legal and professional                  237        275        (38)     (13.76)
Advertising and public relations        204        237        (33)     (13.95)
Communication expenses                  254        250          5        1.92
Other operating expenses                750        573        177       30.93
                                   --------   --------   --------    --------
        Total                      $  6,870   $  6,261   $    609        9.73%
                                   ========   ========   ========    ========




                                    Six Months Ended      Increase / (Decrease)
                                   -------------------   --------------------
                                   06/30/03   06/30/02    Amount     Percent (%)
                                   --------   --------   --------    --------
                                                         
Salaries and employee benefits     $  6,743   $  5,818   $    925       15.90%
Security guards                         440        476        (36)      (7.52)
Net occupancy expense                 1,396      1,451        (55)      (3.79)
Equipment expense                       716        731        (15)      (2.07)
Data processing                         966        959          7        0.72
Office supplies                         199        255        (55)     (21.77)
Legal and professional                  415        693       (278)     (40.06)
Advertising and public relations        357        365         (8)      (2.29)
Communication related expense           517        492         25        5.08
Other operating expenses              1,405      1,073        332       30.94
                                   --------   --------   --------    --------
        Total                      $ 13,154   $ 12,313   $    841        6.83%
                                   ========   ========   ========    ========




INCOME TAX

         The effective tax rate for the six months ended June 30, 2003 was
40.01% compared to 39.96% for the same period of 2002.

         The Bank files its California tax return using the Water's Edge Unitary
method. When computing its California franchise tax liability, the California
law requires that the Bank consider the taxable income allocated from estimated
combined net taxable income using the apportionment factor of property, payroll
and revenues over combined property, payroll and revenue of its foreign-owned
majority shareholder.

FINANCIAL CONDITION

         The Bank's total assets were $1.0 billion at June 30, 2003, an increase
of $67.4 million or 7.19% from the $937.0 million at December 31, 2002. The net
increase is attributable to a $98.5 million or 14.6% increase in net loans
including loans held for sale, a $8.2 million or 34.25% increase in cash and due
from banks offset by a decrease in Federal funds sold of $50.7 million or
81.12%. Total deposits increased by $61.5 million or 8.09% to $821.5 million at
June 30, 2003 from $760.0 million at December 31, 2002. The non-interest bearing
deposits increased $28.5 million or 12.75% and time certificates of deposit of
$100,000 or more increased $32.8 million or 12.68% during the first six months
of 2003 from December 31, 2002. Money market deposits and savings deposits
increased $1.0 million or 0.59% in the six months of 2003 compared with the same
period of 2002. The Bank's borrowings from Federal Home Loan Bank were at a
$70.0 million at June 30, 2003 and December 31, 2002. Stockholders' equity
increased $5.2 million or 5.12% to $106.0 million at June 30, 2003 from $100.9
million at December 31, 2002.

INTEREST-EARNING ASSET MIX

         Total earning assets amounted to $951.4 million at June 30, 2003,
compared with $894.5 million at December 31, 2002, representing an increase of
$56.9 million or 6.36%. The composition of the earning assets changed slightly
at June 30, 2003 compared with December 31, 2002. The net loans as a percentage
of total earning assets increased 5.84% to 81.22% and the percentage of Federal
funds sold to the total earning assets decreased 5.75% to 1.24% at June 30, 2003
compared to December 31, 2002. On an average basis, interest-earning assets
amounted to $972.5 million, an increase of $209.2 million or 27.40% for the
three months ended June 30, 2003 compared to $763.3 million for the same period
of 2002. On an average basis, interest-earning assets amounted to $953.3
million, an increase of $192.5 million or 25.30% for the first six months of
2003 compared to $760.8 million for the same period of 2002.

         The table below shows the changes in the earning asset mix as of the
dates indicated:



                                             (Dollars in thousands)
                                   As of  06/30/03        As of 12/31/02
                                ---------------------   -------------------
Types of earning assets          Amount    Percent(%)    Amount    Percent(%)
                                --------   ----------   --------   --------
                                                       
Federal funds sold              $ 11,800         1.24%  $ 62,500       6.99%
Federal Home Loan Bank stock       3,627         0.38      3,538       0.40
Securities held-to-maturity       85,225         8.96     89,314       9.98
Securities available-for-sale     77,809         8.18     64,701       7.23
Net loans                        772,719        81.22    674,258      75.38
Interest-bearing deposits            177         0.02        211       0.02
                                --------   ----------   --------   --------
        Total earning assets    $951,357       100.00%  $894,522     100.00%
                                ========   ==========   ========   ========




SECURITIES

         The Bank classifies its securities as held-to-maturity or
available-for-sale. The securities classified as held-to-maturity are those that
the Bank has the positive intent and ability to hold until maturity. These
securities are carried at amortized cost. The securities that could be sold in
response to changes in interest rate, increased loan demand, liquidity needs,
capital requirements or other similar factors, are classified as securities
available-for-sale. These securities are carried at fair value, with unrealized
gains or losses reflected net of tax as a component of comprehensive income. As
of June 30, 2003, the Bank had a net unrealized gain of $824,000 on its
available-for-sale portfolio. Accumulated other comprehensive loss for the first
six months of 2003 was $216,000 representing the net unrealized loss, net of
tax.

         The total investment securities increased $9.0 million or 5.86% to
$163.0 million at June 30, 2003 from $154.0 million at December 31, 2002. During
the second quarter of 2003, available-for-sale securities and held-to-maturity
securities were purchased in the amount of $58.2 million.

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

                              INVESTMENT PORTFOLIO
                             (Dollars in thousands)



                                    As of  06/30/03       As of 12/31/02
                                  -------------------   -------------------
                                  Amortized   Fair      Amortized   Fair
                                    Cost      Value        Cost     Value
                                  ---------  --------   ---------  --------
                                                       
AVAILABLE-FOR-SALE:
U.S. Treasury securities          $  1,002   $  1,055   $  1,003   $  1,074
U.S. Government agencies            25,730     25,959     25,996     26,290
Mortgage-backed securities (1)      47,649     48,146     34,000     34,730
State and political subdivision      2,604      2,649      2,507      2,607
                                  --------   --------   --------   --------
   Total available-for-sale       $ 76,985   $ 77,809   $ 63,506   $ 64,701
                                  ========   ========   ========   ========

HELD-TO-MATURITY:

Mortgage-backed securities (1)      85,225     86,640     89,314     90,799
                                  --------   --------   --------   --------
   Total held-to-maturity           85,225     86,640     89,314     90,799
                                  --------   --------   --------   --------
   Total investment securities    $162,210   $164,449   $152,820   $155,500
                                  ========   ========   ========   ========


- ------------
(1) Principal balance may be prepaid before contracted maturity date.

                  INVESTMENT MATURITIES AND REPRICING SCHEDULE
                             (Dollars in thousands)
                              As of June 30, 2003



                                                                  After One But           After Five but
                                         Within One Year       Within Five Years         Within Ten Years
                                     ---------------------    ---------------------    ---------------------
                                      Amount     Yield (1)     Amount     Yield (1)      Amount    Yield (1)
                                     ---------   ---------    ---------   ---------    ---------   ---------
                                                                                 
AVAILABLE-FOR-SALE:
U.S. Treasury securities             $       -           -    $   1,055        5.82%    $      -          -%
U.S. Government agencies                 6,035        5.94       19,924        2.91            -           -
Mortgage-backed  securities (2)         17,016        5.65        8,135        5.93        5,175        2.98
State and political subdivisions         1,506        6.13        1,042        6.17          101        3.00
                                     ---------   ---------    ---------   ---------    ---------   ---------

       Total available-for-sale      $  24,557        5.68%   $  30,156        5.27%   $   5,276        2.99%
                                     =========   =========    =========   =========    =========   =========

HELD-TO-MATURITY:
Mortgage-backed securities (2)               -           -       75,078        4.59            -           -
                                     ---------   ---------    ---------   ---------    ---------   ---------
    Total held-to-maturity                   -           -       75,078        4.59            -           -
                                     ---------   ---------    ---------   ---------    ---------   ---------
       Total investment securities   $  24,557        5.68%   $ 105,234        4.96%   $   5,276        2.99%
                                     =========   =========    =========   =========    =========   =========


                                        After Ten Years               Total
                                     ---------------------   ----------------------
                                      Amount     Yield (1)    Amount      Yield (1)
                                     ---------   ---------   ---------    ---------
                                                              
AVAILABLE-FOR-SALE:
U.S. Treasury securities             $       -           -%  $   1,055         5.82%
U.S. Government agencies                     -           -      25,959         3.92
Mortgage-backed  securities (2)         17,820        4.77      48,146         5.58
State and political subdivisions             -           -       2,649         5.36
                                     ---------   ---------   ---------    ---------

       Total available-for-sale      $  17,820        4.77%  $  77,809         5.43%
                                     =========   =========   =========    =========

HELD-TO-MATURITY:
Mortgage-backed securities (2)          10,147        3.30      85,225         4.44
                                     ---------   ---------   ---------    ---------
    Total held-to-maturity              10,147        3.30      85,225         4.44
                                     ---------   ---------   ---------    ---------
       Total investment securities   $  27,967        4.81%  $  163,03         5.25%
                                     =========   =========   =========    =========


- -------------
(3) Yield on tax-exempt obligations has not been computed on a tax equivalent
basis because the percentage of tax-exempt securities is minimal.

(4) The mortgage-backed securities reflect stated maturities and repricing
schedule and not anticipated prepayments.



LOANS

         The Bank experienced strong loan growth in the first six months of
2003. The Bank achieved record loan production of $218.6 million during the
first six months of 2003 resulting in a $99.3 million increase in gross loans to
$782.4 million at June 30, 2003 from $683.1 million at December 31, 2002. Total
commercial and industrial loans increased $14.7 million or 11.71% to $140.0
million at June 30, 2003 from $125.4 million at December 31, 2002. Commercial
real estate loans increased $81.1 million or 20.48% and residential mortgage
loans decreased $10.2 million or 27.27% during the first six months of 2003.

         The following table sets forth the composition of the Bank's loan
portfolio as of the dates indicated:

                           LOAN PORTFOLIO COMPOSITION
                             (Dollars in thousands)



                                As of 06/30/03         As of 12/31/02
                              -------------------    -------------------
                                          Percent               Percent
                               Amount    of Total    Amount     of Total
                              --------   --------    --------   --------
                                                    
Commercial and industrial     $140,045      17.90%   $125,363      18.35%
Installment loans               20,199       2.58      21,225       3.11
Real estate loans:
   Commercial                  476,877      60.95     395,807      57.94
   Residential mortgage         27,245       3.48      37,459       5.48
Home equity                      6,404       0.82       5,993       0.88
SBA                             77,087       9.85      74,560      10.91
Other (1)                        3,387       0.43       3,619       0.53
Trade Finance                   13,798       1.77      12,488       1.83
Bills Bought                    17,344       2.22       6,617       0.97
                              --------   --------    --------   --------
      Total gross loans (2)   $782,386     100.00%   $683,131     100.00%
                              ========     ======    ========   ========


- ------------------
(1) Consists predominantly of credit card loans.

(2) Net of unearned income and participation loans sold.

NON-PERFORMING ASSETS

         Non-performing assets include loans past due 90 days or more and still
accruing interest, non-accrual loans and OREO. Total non-performing assets at
June 30, 2003 decreased $541,000 to $1.5 million, compared with December 31,
2002. Total non-performing assets were 0.19% of total assets at June 30, 2003,
compared to 0.30 % of total assets at December 31, 2002. The majority balance of
the non-accrual home mortgage loans represented a single commercial loan secured
by the business owners' home of $696,000 at June 30, 2003 which the Bank
anticipates a full collection.

         As of June 30, 2003, the Bank had no OREO. The non-performing loan
coverage ratio, defined as the allowance for loan losses to non-performing
loans, increased to 659.80% as of June 30, 2003 from 437.96% at December 31,
2002.

         The following table provides information with respect to the components
of the Bank's non-performing assets as of the dates indicated.





                                               NON-PERFORMING ASSETS
                                              (Dollars in thousands)
                                         6/30/2003   12/31/2002    6/30/2002
                                        ----------   ----------   ----------
                                                         
NON-ACCRUAL LOANS:

Commercial and industrial               $      413   $    1,091   $    1,302
Installment loans                               45           28            5
Real estate loans:
   Commercial                                    -            -        2,314
   Home mortgage                               798          805          864
Home equity                                      -            -          123
SBA                                            159            -          162
Other                                            1            -            4
Trade Finance                                    -           74           58
Bills Bought                                     -            -            -
                                        ----------   ----------   ----------
     Total                              $    1,416   $    1,998   $    4,832


                                        (Table continues on the following page.)



                                                                          6/30/2003   12/31/2002    6/30/2002
                                                                         ----------   ----------    ----------
                                                                                           
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
   (AS TO PRINCIPAL OR INTEREST):
Commercial and industrial                                                $        -   $        -    $        -
Installment loans                                                                 -            -             -
Real estate loans:
   Commercial                                                                     -            -             -
   Home mortgage                                                                  -            -             -
Home equity                                                                       -            -             -
SBA
Other                                                                            49           28            49
Trade Finance                                                                     -            -             -
Bills Bought                                                                      -            -             -
                                                                         ----------   ----------    ----------
     Total                                                               $       49   $       28    $       49
                                                                         ----------   ----------    ----------
     Total non-performing loans                                          $    1,465   $    2,026    $    4,881
Other real estate owned                                                           -            -             -
Total non-performing assets                                              $    1,465   $    2,026    $    4,881
                                                                         ==========   ==========    ==========
Non-performing loans as a percentage of total gross loans                      0.19%        0.30%         0.83%
Non-performing assets as a percentage of total gross loans
and other real  estate owned                                                   0.19%        0.30%         0.83%


ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses amounted to $9.7 million or 1.24% of
total loans as of June 30, 2003 compared to $8.9 million or 1.30% of total loans
at December 31, 2002.

         The following table presents information relating to the allowance for
loan losses for the periods indicated:





                                                                             (Dollars in thousands)

                                                                         YTD          YTD          YTD
                                                                       06/30/03     12/31/02     06/30/02
                                                                       --------     --------     --------
                                                                                        
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period                                         $  8,873     $  9,467     $  9,467
Provision for loan losses                                                   900        1,100          200
Loans charged-off                                                          (407)      (1,805)        (949)
Recoveries of charged-off loans                                             300          111           77
                                                                       --------     --------     --------
Balance at end of period                                               $  9,666     $  8,873     $  8,795
                                                                       ========     ========     ========
RATIOS:
Net loan charge-offs to average total loans                                0.03%        0.28%        0.30%
Provision for loan losses to average total loans                           0.25         0.18         0.07
Allowance for loan losses to gross loans at end of period                  1.24         1.30         1.50
Allowance for loan losses to total non-performing loans                  659.80       437.96       180.20
Net loan charge-offs to allowance for loan losses at end of period         2.21        19.10        19.85
Net loan charge-offs to provision for loan losses                         11.85       154.05       436.48


         In determining the allowance for loan losses, management continues to
assess the risk inherent in the loan portfolio, the possible impact of known and
potential problem loans, and other factors such as portfolio composition, loan
concentration, and trends in local economic conditions.

         The Bank formally assesses its allowance for loan losses on a quarterly
basis. The allowance for loan losses begins with Management reviewing each
individual classified and criticized loan in detail, and evaluating, among other
things, the adequacy of collateral, payment record, current loan status and
borrowers' financial capacity. A loan loss allowance is assigned to each
impaired loan. Loans categorized as impaired from this quarterly allocation of
loan loss allowance are based upon the specifics of the loans' circumstances,
including updated collateral value, borrowers' or guarantors' financial
capacity, payment record and recent conversations with the borrower.
Additionally, each quarter the Bank updates its twelve-quarter loss migration
analysis for its commercial loan pool, six-quarter loss migration analysis for
its homogeneous loan pool and four-quarter loss migration analysis for its
credit card loan pool to drive the rolling respective loan loss experience
percentages. These loan pools are assigned an appropriate allowance factor based
upon the Bankss.s historical charge off experience, other factors, and then
accounts for qualitative adjustments that take into consideration current
conditions. The allowance is maintained at a level the Bank considers adequate
to cover inherent risk of probable loss associated with its loan portfolio under
prevailing and anticipated economic conditions.

         Based on the Bank's evaluation process and the methodology to determine
the level of the allowance for loan losses, management believes the allowance
level as of June 30, 2003 to be adequate to absorb the estimated known and
inherent risks identified through its analysis. However, no assurance can be
given that the Bank will not sustain losses in any given period which could be
substantial in relation to the size of the allowance.

DEPOSITS

         The Bank's total deposits amounted to $821.5 million at June 30, 2003,
an increase of $61.5 million from $760.0 million at December 31, 2002. The
Bank's average deposits increased $111.0 million or 15.71% to $817.6 million for
the first six months of 2003 from $706.5 million for the same period of 2002.
The average money market accounts increased $53.8 million or 48.25% to $165.3
million for the first six months of 2003 from $111.5 million for the same period
of 2002. The average non-interest bearing deposits increased $25.4 million or
12.44% to $229.5 million for the first six months of 2003 from $204.1 million
for the same period of 2002. The ratio of average noninterest-bearing deposits
to average total deposits was 28.07% for the first six months of 2003 and 28.89%
for the same period of 2002. The Bank's average total cost of deposits was 1.53%
for the first six months of 2003 and 1.67% for the same period of 2002. The Bank
does not hold any brokered deposits.



         The following table illustrates the deposit mix as of the dates
indicated:



                                                (Dollars in thousands)
                                   As of  June 30, 2003   As of December 31, 2002
                                   -------------------    -------------------------
                                     Amount    Percent     Amount          Percent
                                   --------   --------    --------         --------
                                                               
Types of deposits:
Demand, non-interest-bearing       $251,861      30.66%   $223,377            29.39%
Money market accounts               125,447      15.27     126,272            16.61
Super Now                             7,754       0.94       7,602             1.00
Savings                              46,046       5.61      44,215             5.82
Time certificates of deposits of
    $100,000 or more                291,465      35.48     258,653            34.03
Other time deposits                  98,912      12.04      99,877            13.15
                                   --------   --------    --------         --------
    Total deposits                 $821,485     100.00%   $759,996           100.00%
                                   ========   ========    ========         ========


OTHER BORROWINGS

         The Bank's borrowings from Federal Home Loan Bank amounted to $70.0
million at June 30, 2003 and December 31, 2002.

CAPITAL RESOURCES

         As of June 30, 2003, stockholders' equity was $106.0 million or 10.55%
of total assets, compared with $100.9 million or 10.77% as of December 31, 2002.

         The Bank is required to maintain a minimum ratio of qualifying total
capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital
Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a
ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1
Risk-Based Capital Ratio"). As of June 30, 2003 and December 31, 2002, the
Bank's Total Risk-Based Capital Ratios were 14.36% and 15.95%, respectively, and
its Tier 1 Risk Based Capital Ratios were 13.15% and 14.70%, respectively. The
Bank's regulatory capital continued to well exceed the regulatory minimum
requirements on June 30, 2003; however, the Bank is no longer considered to be
"well capitalized" as a result of Consent Agreement entered into with Federal
Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal
Proceedings." To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table and not be subject to any regulatory order, agreement or directive.

         Banks are also required to maintain a leverage capital ratio designed
to supplement the risk-based capital guidelines. Banks that have received the
highest rating of the five categories used by regulators to rate banks and are
not anticipating or experiencing any significant growth must maintain a ratio of
Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage
Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must
maintain capital levels commensurate with the level of risk to which they are
exposed, including the volume and severity of problem loans, and federal
regulators may, however, set higher capital requirements when a bank's
particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.38%
and 11.56% at June 30, 2003 and December 31, 2002, respectively.

         The following table presents the Bank's regulatory capital amount and
ratios as of June 30, 2003 and December 31, 2002.



                                                                     AS OF JUNE 30, 2003
                                                                    (DOLLARS IN THOUSANDS)
                                           ----------------------------------------------------------------------
                                                                                          TO BE WELL CAPITALIZED
                                                                      FOR CAPITAL         UNDER PROMPT CORRECTIVE
                                                  ACTUAL           ADEQUACY PURPOSE          ACTION PROVISIONS
                                           -------------------    -------------------     -----------------------
                                            AMOUNT      RATIO      AMOUNT     RATIO        AMOUNT       RATIO
                                           --------   --------    --------   --------     --------   -----------
                                                                                   
Total capital (to risk-weighted assets)    $115,195      14.36%   $ 64,175   > or = 8.0%  $ 80,219   > or =10.0%
Tier I capital (to risk-weighted assets)    105,528      13.15      32,100   > or = 4.0     48,150   > or = 6.0
Tier I capital (to average assets)          105,528      10.22      41,303   > or = 4.0     51,628   > or = 5.0
                                           ========   ========    ========   ==========   ========   ==========




                                                                    AS OF DECEMBER 31, 2002
                                                                    (DOLLARS IN THOUSANDS)
                                           ------------------------------------------------------------------------
                                                                                           TO BE WELL CAPITALIZED
                                                                      FOR CAPITAL          UNDER PROMPT CORRECTIVE
                                                  ACTUAL           ADEQUACY PURPOSE           ACTION PROVISIONS
                                           -------------------    -------------------     -------------------------
                                            AMOUNT      RATIO      AMOUNT     RATIO        AMOUNT          RATIO
                                           --------   --------    --------   --------     --------      -----------
                                                                                      
Total capital (to risk-weighted assets)    $108,689      15.95%   $ 54,515   > or = 8.0%  $ 68,144      > or = 10.0%
Tier I capital (to risk-weighted assets)    100,169      14.70      27,257   > or = 4.0     40,885      > or =  6.0
Tier I capital (to average assets)          100,169      11.56      34,671   > or = 4.0     43,338      > or =  5.0
                                           ========   ========    ========   ==========   ========      ===========




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LIQUIDITY AND INTEREST RATE SENSITIVITY

         Liquidity is the Bank's ability to maintain sufficient cash flow to
meet deposit withdrawals and loan demands and to take advantage of investment
opportunities as they arise. The Bank's principal sources of liquidity have been
growth in deposits and proceeds from the maturity of securities and repayments
from loans. To supplement its primary sources of liquidity, the Bank maintained
$222.9 million of borrowing capacity under a collateralized line of credit with
the Federal Home Loan Bank of San Francisco.

         At June 30, 2003, the Bank's available liquidity totaled $270.3
million, which was approximately 30.32% of total deposits and 88.45% of total
volatile liabilities compared to $186.4 million at December 31, 2002, which was
approximately 24.52% of total deposits and 71.85% of total volatile liabilities.
The volatile liabilities are comprised of time certificates of deposit of
$100,000 or more and other volatile deposits. The Bank's policy is to maintain a
minimum fund availability to total deposit and borrowing ratio of 20% and a
minimum fund availability to total volatile liability ratio of 50%. The Bank
considers any excessive cash holdings or balances in due from banks, overnight
Fed funds sold, uncollateralized available-for-sale securities and readily
available Federal Home Loan Bank advances as funds availability. The Bank
follows the regulatory definition of volatile liabilities, which is Jumbo CD's.
The ratios of the average balance of Jumbo CD's to average total deposits for
June 30, 2003 and December 31, 2002 were 32.14% and 33.99%, respectively.

         The Bank had a significant portion of its time deposits maturing within
one year or less as of June 30, 2003. Management anticipates that there may be
some outflow of these deposits upon maturity due to the keen competition in the
Bank's market place. However, based on its historical runoff experience, the
Bank expects the outflow will be minimal and can be replenished through its
normal growth in deposits.



         Market risk is the risk of loss from adverse changes in market prices
and rates. The Bank's market risk arises primarily from interest rate risk
inherent in its lending, investment and deposit taking activities. The Bank's
profitability is affected by fluctuations in interest rates. A sudden and
substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through
analyzing the repricing characteristics of its loans, securities, and deposits
on an on-going basis. One of the primary goals is to optimize net income under
varying interest rate environments. The focus of this process is the
development, analysis, implementation and monitoring of earnings enhancement
strategies that provide stable earnings and capital levels during periods of
changing interest rates. Management uses both interest rate sensitivity
analysis, and a simulation model to measure and quantify the impact to the
Bank's profitability on the market value of its assets and liabilities.

         The interest rate sensitivity analysis measures the repricing
mismatches between assets and liabilities. The interest rate sensitivity gap is
determined by subtracting the amount of liabilities from the amount of assets
that reprice in a particular time interval. A liability sensitivity results when
more liabilities than assets reprice or mature within a given period.
Conversely, an asset sensitive position results when more assets than
liabilities reprice within a given period. At June 30, 2003, the Bank maintained
positive one-year gap position of $105.9 million or 10.54% of total assets. This
compared with a positive one-year gap position of $86.5 million or 9.23% of
total assets at December 31, 2002. The increase in gap was primarily due to a
net increase in rate sensitive assets over rate sensitive liabilities. Because
the Bank's assets tend to reprice more frequently than its liabilities over a
twelve months horizon, the Bank will realize lower net interest income in a
falling rate environment.

         Since an interest rate sensitivity analysis does not measure the timing
differences in the repricing of assets and liabilities, the Bank uses a
simulation model to quantify the extent of the differences in the behavior of
the lending and funding rates, so as to project future earnings or market values
under alternative interest scenarios.

         The following table presents the interest rate sensitivity of the
Bank's interest-earning assets and interest-bearing liabilities as of June 30,
2003 using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms. Actual payment patterns may differ from contractual payment patterns.

                       INTEREST RATE SENSITIVITY ANALYSIS
                             (Dollars in thousands)



                                                                      At June 30, 2003
                                                                      ----------------
                                                            Amounts Subject to Repricing Within
                                             -----------------------------------------------------------------
                                                                                        After 5
                                             0-3 Months   3-12 Months    1-5 Years       Years        Total
                                             ----------   ----------     ----------    ----------   ----------
                                                                                     
INTEREST-EARNING ASSETS:
         Total Loans*                        $  627,509   $   21,413     $   55,549    $   77,979   $  782,450
         Federal Home Loan Bank Stock             3,627           --             --            --        3,627
         Investment securities                   11,930       21,627        105,234        33,243      163,034
         Federal Funds sold                      11,800           --             --            --       11,800
         Interest-earning deposits                  177           --             --            --          177
                                             ----------   ----------     ----------    ----------   ----------
              Total                             655,043       34,040        160,783       111,222      961,088
INTEREST-BEARING LIABILITIES:
         Money market                           125,447           --             --            --      125,447
         NOW                                      7,754           --             --            --        7,754
         Savings deposits                        46,046           --             --            --       46,046
         Time deposits of $100,000 or more      156,378      132,784          9,148            --      291,465
         Other Time deposits                     41,447       48,317          8,568            --       98,912
         Borrowed funds                          10,000       15,000         45,000            --       70,000
                                             ----------   ----------     ----------    ----------   ----------
              Total                          $  387,072   $  196,101     $   56,451    $       --   $  639,624
                                             ==========   ==========     ==========    ==========   ==========
Interest rate sensitivity gap                $  267,971   $ (162,061)    $  104,332    $  111,222   $  321,464
Cumulative interest rate sensitivity gap     $  267,971   $  105,910     $  210,242    $  321,464
Cumulative interest rate sensitivity gap
ratio as a percentage of total assets             26.68%       10.54%         20.93%        32.01%


*Loans including loan held forsale and unearned fees and excluding Non-Accrual
Loans


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

         The following table sets forth the Bank's estimated net interest income
over a twelve month period and NPV based on the indicated changes in market
interest rates as of June 30, 2003.



                       % CHANGE IN
                       NET INTEREST
     CHANGE            INCOME (NEXT          % CHANGE IN
(IN BASIS POINTS)    TWELVE MONTHS)              NPV
- -----------------   -----------------    -----------------
                                   
             +200             10.72%                  7.26%
                               5.12                   3.63
             +100
                0                 -                      -
             -100             -8.71                  -3.73


         As indicated above, the net interest income increases (decreases) as
market interest rates rise (fall). This is due to the fact that the Bank
maintained a positive gap and also a substantial portion of the interest earning
assets reprice immediately after the rate change, interest-bearing liabilities
reprice slower than interest-earning assets, and interest-bearing liabilities do
not reprice to the same degree as interest earning assets, given a stated change
in the interest rate. The NPV increases (declines) as the interest income
increases (decreases) since the change in the discount rate has a greater impact
on the change in the NPV than does the change in the cash flows.

         Management believes that the assumptions used by it to evaluate the
vulnerability of the Bank's operations to changes in interest rates approximate
actual experience and considers them reasonable; however, the interest rate
sensitivity of the Bank's assets and liabilities and the estimated effects of
changes in interest rates on the Bank's net interest income and NPV could vary
substantially if different assumptions were used or actual experience differs
from the historical experience on which they are based.

         The Bank's historical strategies in protecting both net interest income
and economic value of equity investments from significant movements in interest
rates have involved restructuring its investment portfolio and using FHLB
advances. Bank policies also permit the purchase of rate caps and floors, and
engaging in interest rate swaps, although the



Bank has not yet engaged in either of these activities. At June 30, 2003 the
Bank had no derivative instruments outstanding.

ITEM 4. CONTROLS AND PROCEDURES

(a)      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         The Bank's Chief Executive Officer and its Chief Financial Officer,
after evaluating the effectiveness of the Bank's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c) as of the
end of the period covered by this report (the "Evaluation Date") have concluded
that as of the Evaluation Date, the Bank's disclosure controls and procedures
were adequate and effective to ensure that material information relating to the
Bank would be made known to them by others within the Bank, particularly during
the period in which this quarterly report was being prepared.

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

(b)      CHANGES IN INTERNAL CONTROLS

         There were no significant changes in the Bank's internal controls or in
other factors that could significantly affect these internal controls subsequent
to the Evaluation Date, nor any significant deficiencies or material weaknesses
in such controls requiring corrective actions. As a result, no corrective
actions were taken.

                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         From time to time, the Bank is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration
information furnished by the General Counsel as to the current status of these
claims or proceedings to which the Bank is a defendant, Management is of the
opinion that the ultimate aggregate liability represented thereby, if any, will
not have a material adverse effect on the financial condition of the Bank.

         The Bank has been subject to a Consent Order by the FDIC pursuant to
Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(1) since April 14, 2002. The Consent Order addresses actions necessary
to correct certain Bank Secrecy Act ("BSA") compliance deficiencies including
inadequate training and internal controls, and ineffective independent testing
of such controls. Even before the Consent Order, the Bank had begun taking
proactive steps to improve its BSA compliance. For example, the Bank implemented
an enterprise-wide risk management infrastructure, which includes a
comprehensive compliance and training program. This step was taken with the
assistance of a leading financial services consulting firm, The Secura Group,
which the Bank retained in November 2001 to advise and assist the Bank in its
compliance efforts. To improve the overall efficiency and effectiveness of BSA
monitoring, the Bank implemented an automated BSA tracking/monitoring system. In
addition, the Bank is in the process of improving its due diligence efforts to
identify and monitor high-risk accounts, internal controls to assure the
accuracy and completeness of internal reports, and has intensified employee
training. Finally, the Audit Committee has engaged Deloitte & Touche to conduct
ongoing independent testing to validate the BSA monitoring controls, systems and
processes including the implementation of the BSA Tracking System and also to
oversee the bank-wide risk management. The Board of Directors, Management,
Officers, and employees of the Bank are fully committed to complying with all of



the terms of the Consent Order, and have been working and will continue to work
closely with the FDIC towards this goal.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Bank's annual meeting of shareholders was held on May 22, 2003.
     Proxies were solicited by the Bank's management pursuant to Regulation 14
     under the Securities Exchange Act of 1934. There was no solicitation in
     opposition to Management's nominees for directorship as listed in the proxy
     statement, and all of such nominees were elected pursuant to the vote of
     shareholders. The directors noted below were elected to serve in office
     until the next annual meeting of shareholders. The votes were as follows:



                     FOR       AGAINST    ABSTAIN
                                 
Jin Kon Park      8,411,775     257,702     None
Oh Kyung Kwon     8,400,075     269,402     None
Yong Koo Kim      8,400,075     269,402     None
Oh Hoon Kwon      8,309,475     360,002     None
Donald D. Byun    8,653,402      16,075     None
Kraig A. Kupiec   8,603,402      66,075     None
Sun Kee Kim       8,603,402      66,075     None
David B. Warner   8,181,175     488,302     None
Ernest E. Dow     8,603,402      66,075     None


ITEM 5. OTHER INFORMATION

         Not Applicable



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) Exhibit



 Exhibit Table                                                                                                         Exhibit Table
Reference Number                                      Item                                                                 Number
- ----------------                                      ----                                                                 ------
                                                                                                                 
      3.1           Articles of Incorporation, as Amended(1)........................................................

      3.2           2002 Amendment to Articles of Incorporation(2)..................................................

      3.3           Bylaws, as Amended(1)...........................................................................

      3.4           2001 Amendment to Bylaws(3).....................................................................

      4.1           Specimen of Common Stock Certificate(1).........................................................

      10.1          2000 Stock Option Plan(1).......................................................................

      10.2          401(k) Plan(3)..................................................................................

      10.3          Lease for Corporate Headquarters(1).............................................................

      10.4          Lease for Western Branch Office(1)..............................................................

      10.5          Lease for Wilshire Branch Office(1).............................................................

      10.6          Lease for Downtown Branch Office(1).............................................................

      10.7          Lease for Van Nuys Branch Office(1).............................................................

      10.8          Lease for Torrance Branch Office(1).............................................................

      10.9          Lease for Rowland Heights Branch Office(1)......................................................

      11.1          Statement Regarding Computation of Earnings Per Share(4)........................................

      31.1          Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002..

      31.2          Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002..

      32.1          Certification of Chief Financial Officer and Chief Financial Officer Pursuant to Section 906 of
                    Sarbanes-Oxley Act of 2002......................................................................


         (b) Reports on Form 8-K

         On April 10, 2003, the Bank filed a Form 8-K announcing that KEB will
no longer recommend its retired executives to serve as president of the Bank and
the Bank expects to retain an experienced President & CEO in American community
banking.

         On July 26, 2003, the Bank filed a Form 8-K announcing the change of
accounting firm. The accounting firm of KPMG, LLP was selected as independent
auditors for the Bank's 2003 fiscal year and the Bank dismissed
PricewaterhouseCoopers LLP as independent auditors for the Bank.

- --------------
(1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration
Statement, as filed with the FDIC on June 12, 2000.

(2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed
with the FDIC on April 1, 2003.

(3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as
filed with the FDIC on April 20, 2001.

(4) The information required by this exhibit is incorporated herein by reference
from Note of the Bank's Financial Statements included herein.



                                   SIGNATURES

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

                               Pacific Union Bank

Date: August 13, 2003    By: /s/ Dianne Kim
                            ----------------------------------------------------
                                 Dianne Kim
                                 Senior Vice President and Chief Financial
                                 Officer
                                 (Principal financial or accounting officer and
                                 duly authorized signatory)

EX-99.4

                                                                    EXHIBIT 99.4

================================================================================

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

- --------------------------------------------------------------------------------

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                          FDIC Certificate Number 21765

                               PACIFIC UNION BANK
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                                  95-2888370
State or other jurisdiction of             I.R.S. Employer Identification Number
incorporation or organization

      3530 WILSHIRE BLVD. #1800
       LOS ANGELES, CALIFORNIA                           90010
Address of principal executive offices                  Zip Code

                                 (213) 385-0909
               Registrant's telephone number, including area code

   (Former name, former address and former fiscal year, if changed since last
                             report): Not applicable

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                  Yes X  No

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

         Common stock, $6.00 par value, 10,673,739 shares outstanding as of
November 3, 2003.

================================================================================



                               PACIFIC UNION BANK

                                TABLE OF CONTENTS



                                                                                                     Page No.
                                                                                                  
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements (Unaudited)

                  Balance Sheets  -
                           September 30, 2003 and December 31, 2002

                  Statements of Operations  -
                           Three months and nine months ended September 30, 2003 and 2002

                  Statements of Cash Flows  -
                           Nine months ended September 30, 2003 and 2002

                  Notes to Financial Statements
         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

         Item 3.   Quantitative and Qualitative Disclosure About Market Risk

         Item 4.   Controls and Procedures

PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities

         Item 3.  Defaults upon Senior Securities

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

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K

         Signatures




                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               PACIFIC UNION BANK
                                 Balance Sheets
                 As of September 30, 2003 and December 31, 2002
                                   (Unaudited)



                                                                    SEPTEMBER 30, 2003  DECEMBER 31, 2002
                                                                    ------------------  -----------------
                                                                                  
                        ASSETS
Cash and due from banks - demand                                      $    21,426,702    $    24,054,519
Federal funds sold                                                         24,500,000         62,500,000
Due from banks - interest-bearing                                             466,030            210,654
Federal Home Loan Bank Stock                                                5,789,500          3,537,800
Securities held-to-maturity, at amortized cost (fair value of
  $68,323,575 at September 30, 2003 and $90,798,966 at December
  31, 2002)                                                                68,271,548         89,313,683
Securities available-for-sale, at fair value                               94,344,814         64,701,421
Loans receivable                                                          825,495,501        683,131,191
      Less allowance for loan losses                                       (9,997,111)        (8,872,995)
                                                                      ---------------    ---------------
              Net loans receivable                                        815,498,391        674,258,196
                                                                      ---------------    ---------------
Loans held for sale                                                         5,966,111                 --
Customers' acceptance liabilities                                           1,321,142            657,760
Bank premises and equipment, net                                            6,387,210          6,610,142
Accrued interest receivable                                                 3,340,159          3,404,574
Deferred tax assets                                                         5,857,031          4,663,046
Income taxes receivable                                                     1,566,542          1,116,038
Other assets                                                                3,068,992          1,967,404
                                                                      ---------------    ---------------
      Total assets                                                    $ 1,057,804,171    $   936,995,237
                                                                      ===============    ===============
                 LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
      Demand, non-interest-bearing                                    $   242,528,146        223,377,195
      Demand, interest-bearing                                              8,606,956          7,602,024
      Money market and savings                                            183,947,600        170,486,917
      Time certificates of deposit:
              Less than $100,000                                           96,631,660         99,876,831
              $100,000 or more                                            306,252,523        258,652,585
                                                                      ---------------    ---------------
      Total deposits                                                      837,966,885        759,995,552

Other borrowed funds                                                      105,000,000         70,000,000
Acceptance liabilities                                                      1,321,142            657,760
Accrued interest payable                                                    3,235,623          3,140,064
Other liabilities                                                           2,068,174          2,325,902
                                                                      ---------------    ---------------
      Total liabilities                                                   949,591,824        836,119,278
                                                                      ---------------    ---------------
Stockholders' equity:
      Common stock, $6 par value.  Authorized 30,000,000 shares;
              issued and outstanding 10,673,739 shares at September
              30, 2003 and 10,621,554 shares at December 31, 2002          64,050,853         63,724,507
      Capital surplus                                                      22,309,108         22,174,825
      Retained earnings                                                    21,798,965         14,283,984
      Accumulated other comprehensive income -  unrealized gain
        on securities available-for-sale - net of taxes                        53,421            692,643
                                                                      ---------------    ---------------
              Total stockholders' equity                                  108,212,347        100,875,959
                                                                      ---------------    ---------------
              Total liabilities and stockholders' equity              $ 1,057,804,171    $   936,995,237
                                                                      ===============    ===============


            See accompanying notes to unaudited financial statements.



                               PACIFIC UNION BANK
                            Statements of Operations
         For the Three and Nine Months Ended September 30, 2003 and 2002
                                   (Unaudited)



                                                                FOR THE THREE MONTHS ENDED  FOR THE NINE MONTHS ENDED
                                                                    2003          2002         2003          2002
                                                                -----------    ----------   -----------    ----------
                                                                                               
Interest income:
       Interest and fees on loans                               $11,202,615     9,348,476   $31,841,752    27,142,726
       Dividend on Federal Home Loan Bank stock                      42,886        16,186       123,014        46,701
       Interest on securities held-to-maturity                      718,348       925,123     2,355,462       964,106
       Interest on securities available-for-sale                    748,845     1,429,941     2,100,297     4,809,762
       Interest on Federal funds sold                               105,777       329,590       616,159       932,252
       Other interest income                                          1,056         7,342        18,021        15,674
                                                                -----------    ----------   -----------    ----------
         Total interest income                                   12,819,527    12,056,658    37,054,705    33,911,221

Interest expense:
       Demand - interest bearing                                      5,870        10,778        17,351        30,551
       Savings and money market                                     700,339       653,382     1,932,871     1,839,371
       Time certificates of deposit:
         Less than $100,000                                         639,468       815,624     2,018,174     2,389,543
         $100,000 or more                                         1,603,698     1,743,956     4,522,689     4,780,060
       Other borrowings                                             578,169       503,576     1,781,288       551,967
                                                                -----------    ----------   -----------    ----------
         Total interest expense                                   3,527,544     3,727,316    10,272,373     9,591,492

         Net interest income before provision for loan losses     9,291,983     8,329,342    26,782,332    24,319,729

Provision for loan losses                                           400,000       200,000     1,300,000       400,000
                                                                -----------    ----------   -----------    ----------
         Net interest income after provision for loan losses      8,891,983     8,129,342    25,482,332    23,919,729
                                                                -----------    ----------   -----------    ----------
Other income:
       Service charges on deposit accounts                        1,550,299     1,602,043     4,781,409     4,802,707
       Remittance fees                                              216,391       211,466       677,710       664,379
       Letter of credit related fees                                179,636       215,455       578,363       618,555
       Gain on sale of premise                                           --            --            --     1,193,797
       Gain on sale of investment securities                        100,000            --       100,000            --
       Gain on sale of loans                                      1,020,597            --     1,801,003            --
       Other operating income                                       468,870       386,333     1,353,408     1,283,621
                                                                -----------    ----------   -----------    ----------
         Total other income                                       3,535,793     2,415,298     9,291,893     8,563,059
                                                                -----------    ----------   -----------    ----------
Other expenses:
       Salaries and employee benefits                             3,784,154     3,108,228    10,526,824     8,925,940
       Security guards                                              220,849       239,803       661,070       715,836
       Net occupancy expense                                        713,345       716,737     2,108,898     2,167,912
       Equipment expense                                            330,860       312,705     1,046,496     1,043,467
       Data processing                                              486,125       482,244     1,452,233     1,441,452
       Office supplies                                              115,484        99,740       314,741       354,439
       Legal and professional                                       294,888       272,362       710,049       964,974
       Advertising and public relations                             190,317       209,609       546,921       574,573
       Communication related expense                                246,880       270,779       763,937       762,856
       Other operating expenses                                     927,824       704,253     2,333,315     1,778,042
                                                                -----------    ----------   -----------    ----------
         Total other expenses                                     7,310,726     6,416,459    20,464,484    18,729,491
                                                                -----------    ----------   -----------    ----------
         Income before income taxes                               5,117,050     4,128,181    14,309,741    13,753,297

Income taxes                                                      2,050,000     1,491,000     5,728,000     5,337,000
                                                                -----------    ----------   -----------    ----------
         Net income                                             $ 3,067,050     2,637,181   $ 8,581,741     8,416,297
                                                                ===========    ==========   ===========    ==========
Net income per share:
      Basic                                                     $      0.29          0.25   $      0.81          0.79
      Diluted                                                   $      0.29          0.25   $      0.80          0.79

Weighted-average common shares outstanding:

      Basic                                                      10,669,716    10,621,554    10,645,963    10,614,150
      Diluted                                                    10,729,797    10,703,296    10,715,290    10,703,988


                 See accompanying notes to financial statements



                               PACIFIC UNION BANK
                            Statements of Cash Flows
              For the Nine Months Ended September 30, 2003 and 2002
                                   (Unaudited)



                                                                                          09/30/2003      09/30/2002
                                                                                        -------------    -------------
                                                                                                   
Cash flows from operating activities:
    Net income                                                                          $   8,581,741    $   8,416,297
    Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation and amortization expenses                                                 927,150        1,038,641
       Provision for loan losses                                                            1,300,000          400,000
       Accretion of discount and amortization of premium
          on securities held-to-maturity, net                                                (121,424)        (888,413)
       Accretion of discount and amortization of premium
          on securities available-for-sale, net                                              (654,698)          57,446
       Net loss (gain) on disposal of Bank premises and equipment                               9,943       (1,200,897)
       Gain on sale of loans                                                               (1,801,003)              --
       Origination of loans held for sale                                                 (30,974,418)              --
       Proceeds from sale of loans held for sale                                           33,095,363               --
       Decrease (Increase) in accrued interest receivable                                      64,415         (536,705)
       (Increase) decrease in deferred income taxes                                          (724,220)         326,252
       Increase in income taxes receivable                                                   (450,504)      (1,046,517)
       Stock dividend on Federal Home Loan Bank stock                                        (127,700)         (64,900)
       Increase in other assets                                                            (1,101,588)        (234,957)
       Increase (decrease) in accrued interest payable                                         95,559       (1,627,050)
       (Decrease) increase in other liabilities                                              (257,728)         336,137
                                                                                        -------------    -------------
                   Net cash provided by operating activities                                7,860,888        4,975,334
                                                                                        -------------    -------------
Cash flows from investing activities:
    Increase in Federal Home Loan Bank Stock                                               (2,124,000)      (1,931,300)
    Proceeds from maturities and redemptions of securities held-to-maturity                46,128,693        2,451,925
    Proceeds from maturities and redemptions of securities available-for-sale              69,636,759       49,297,215
    Purchase of securities held-to-maturity                                               (24,965,134)    (100,474,411)
    Purchase of securities available-for-sale                                             (99,734,441)     (16,172,981)
    Proceeds from recoveries of written-off loans                                             325,583           97,550
    Net increase in loans                                                                (149,151,830)     (83,956,899)
    Purchases of Bank premises and equipment                                                 (714,161)        (584,094)
    Proceeds from sale of Bank premises and equipment                                              --        3,574,300
                                                                                        -------------    -------------
                   Net cash used in investing activities                                 (160,598,531)    (147,698,695)
                                                                                        -------------    -------------
Cash flows from financing activities:
    Net increase in demand deposits, non-interest-bearing                                  19,150,951       25,580,380
    Net increase in demand deposits, interest-bearing                                       1,004,932        1,551,020
    Net increase in money market and savings deposits                                      13,460,683       33,580,966
    Net increase in time certificates of deposit                                           44,354,767       21,338,785
    Proceeds in other borrowed funds                                                       35,000,000       70,000,000
    Proceeds from exercise of stock options                                                   460,629          148,248
    Cash dividend paid                                                                     (1,066,760)              --
    Cash paid for fractional shares                                                                --             (425)
                                                                                        -------------    -------------
                   Net cash provided by financing activities                              112,365,202      152,198,974
                                                                                        -------------    -------------
                   Net (decrease) increase in cash and cash equivalents                   (40,372,441)       9,475,613

Cash and cash equivalents at beginning of period                                           86,765,173       68,073,953
                                                                                        -------------    -------------
Cash and cash equivalents at end of period                                              $  46,392,732    $  77,549,566
                                                                                        =============    =============
Supplemental disclosures of cash flow information:
    Cash paid during the period for:
        Interest                                                                        $  10,176,814    $  11,218,543
        Income taxes                                                                    $   7,800,000    $   5,837,000
                                                                                        =============    =============
    Supplemental disclosure of non-cash investing & financing activities:
        Transfer of retained earnings to common stock and capital surplus for
              Stock dividend                                                            $          --    $  13,070,291
        Transfer in of loans held for sale                                              $   5,966,111    $   2,272,624


            See accompanying notes to unaudited financial statements.



                               PACIFIC UNION BANK
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying unaudited interim financial statements of Pacific
Union Bank ("Bank") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United State of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.

2.       COMPREHENSIVE INCOME

         Comprehensive income consists of net income and net unrealized gain
(loss) on securities available-for-sale. The comprehensive income amounted to
$7.9 million, which included net income of $8.6 million and a decrease in
unrealized gain of $639,000, which is net of the tax effect of $470,000 for the
nine months ended September 30, 2003. The comprehensive income amounted to $8.3
million, which included net income of $8.4 million and a decrease in unrealized
gain of $150,000, which is net of the tax effect of $243,000 for the nine months
ended September 30, 2002.

3.       EARNINGS PER SHARE

         The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation for the three months ended September
30, 2003 and 2002.



                                                              WEIGHTED
                                              NET INCOME   AVERAGE SHARES    PER SHARE
2003                                          (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                              ----------   --------------   ----------
                                                                   
Basic EPS -
    Income available to common stockholders   $3,067,050     10,669,716     $     0.29

Effect of Dilutive Stock Options                      --         60,081             --
                                              ----------   ------------     ----------
Diluted EPS -
    Income available to common stockholders   $3,067,050     10,729,797     $     0.29
                                              ==========   ============     ==========




                                                              WEIGHTED
                                              NET INCOME   AVERAGE SHARES    PER SHARE
2002                                          (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                              ----------   --------------   ----------
                                                                   
Basic EPS -
    Income available to common stockholders   $2,637,181     10,621,554     $     0.25

Effect of Dilutive Stock Options                      --         81,742             --
                                              ----------   ------------     ----------
Diluted EPS -
    Income available to common stockholders   $2,637,181     10,703,296     $     0.25
                                              ==========   ============     ==========




         The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation for the nine months ended September
30, 2003 and 2002.



                                                              WEIGHTED
                                              NET INCOME   AVERAGE SHARES    PER SHARE
2003                                          (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                              ----------   --------------   ----------
                                                                   
Basic EPS -
    Income available to common stockholders   $ 8,581,741    10,645,963           0.81

Effect of Dilutive Stock Options                       --        69,328          (0.01)
                                              -----------  ------------     ----------
Diluted EPS -
    Income available to common stockholders   $ 8,581,741    10,715,290           0.80
                                              ===========  ============     ==========




                                                              WEIGHTED
                                              NET INCOME   AVERAGE SHARES    PER SHARE
2002                                          (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                              ----------   --------------   ----------
                                                                   
Basic EPS -
    Income available to common stockholders   $8,416,297     10,614,150      $  0.79

Effect of Dilutive Stock Options                      --         89,838           --
                                              -----------  ------------     --------
Diluted EPS -
    Income available to common stockholders   $8,416,297     10,703,988      $  0.79
                                              ===========  ============     ========


4.       CAPITAL TRANSACTIONS

         The Bank's outstanding number of shares was 10,673,739 at September 30,
2003. The Bank has declared a quarterly cash dividend of $0.05 per common share
on October 27, 2003. The cash dividend will be paid on November 28, 2003 to all
shareholders of record as of November 17, 2003.

5.       STOCK OPTIONS

         Had compensation cost for the Bank's stock option plan been determined
based on the fair values at the grant dates for awards under the plan consistent
with the fair value method of SFAS No. 123, the Bank's net income and earnings
per share for the nine months ended September 30, 2003 and September 30, 2002
would have been reduced to the pro forma amounts indicated below.



                                          FOR THE THREE MONTHS ENDED            FOR THE NINE MONTHS ENDED
                                       SEPT. 30, 2003    SEPT. 30, 2002     SEPT. 30, 2003     SEPT. 30, 2002
                                       --------------    --------------     --------------     --------------
                                                                                   
Net Income:
   As reported                          $ 3,067,050       $  2,637,181       $  8,581,741       $  8,416,297
   Stock based compensation expense         (16,636)           (18,372)           (45,555)           (41,418)
                                        -----------       ------------       ------------       ------------
   Pro-forma                              3,050,414          2,618,809          8,536,186          8,374,879
                                        ===========       ============       ============       ============
Earnings per share:
   As reported:
   Basic                                $      0.29       $       0.25       $       0.81       $       0.79
   Diluted                                     0.29               0.25               0.80               0.79

  Pro-forma:
   Basic                                $      0.29       $       0.25       $       0.80       $       0.79
   Diluted                                     0.28               0.24               0.80               0.78




6.       RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of SFAS No. 123 (SFAS No. 148) was issued. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123 ), to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in not only annual, but also interim financial statements about the effect the
fair value method would have had on reported results. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure requirements are effective for
interim periods beginning after December 15, 2002. It is anticipated that the
financial impact of SFAS 148 will not have a material effect on the Bank.

         In January 2003, The Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN No. 46). This Interpretation
addresses consolidation by business enterprises of variable interest entities
and clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The FASB deferred
the effective date for applying the provision of FIN 46 for interests held by
public entities in variable interest entities or potential variable interest
entities created before February 1, 2003 until the end of the first interim or
annual period after December 15, 2003. Certain disclosure requirements apply in
all financial statements issued after January 1, 2003, regardless when the
variable interest entity was established. The Bank has no business interests
that require consolidation or deconsolidation as a result of applying provisions
of FIN 46.

         In April, 2003, The Financial Accounting Standards No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149")
was issued. SFAS No. 149 clarifies and amends financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). In general, SFAS 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The financial impact of SFAS 149 did not have a
material effect on the Bank.

         In May, 2003, Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150") was issued. FASB No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity that have been
presented either entirely as equity or between the liabilities section and the
equity section of the statement of financial position. Generally, SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after September 15, 2003. SFAS 150 is to be implemented by reporting
the cumulative effect of a change in an accounting principle for financial
instruments created before May 15, 2003 and still existing at the beginning of
the interim period of adoption. The financial impact of SFAS 150 did not have a
material effect on the Bank.

7.       SUBSEQUENT EVENT

         Korea Exchange Bank ("KEB"), which holds approximately 62% of the
Bank's outstanding shares, recently accepted a capital infusion from Lone Star
Fund IV (U.S.), L.P. and its affiliates (collectively, "Lone Star"), which
resulted in Lone Star holding a majority of the outstanding voting stock of KEB.
In connection with the infusion, KEB transferred all of the Bank shares that it
owns to a trust pursuant to a trust agreement dated October 31, 2003, which was
entered into between KEB, as grantor and Mr. L. Dale Crandall, as trustee. While
KEB retains all of the economic interest in the Bank shares transferred to the
trust, the trust agreement gives the trustee voting and dispositive power over
the Bank shares and directs the trustee to dispose of all or substantially all
of such interest either directly through a sale or in connection with a merger
or similar transaction of the Bank with a third party. The transfer of the
shares to the trustee does not affect the Bank's day-to-day business and
operations.



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

         The following discussion and analysis includes forward-looking
statements regarding management's beliefs, projections and assumptions
concerning future results and events. When used the words "anticipate",
"believe", "estimate", "expect", and "intend" and words or phrases of similar
meanings as they relate to the Bank or the Bank's management, are intended to
identify forward-looking statements. These statements are not guarantees and
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Bank to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, governmental
policies and actions of regulatory agencies, costs associated with the Bank's
future expansion, competition from other commercial banks and other competition
and market and general economic factors. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on any forward-looking
statements, which speak as of the date hereof. All forward-looking statements
contained in this Form 10-Q are qualified in their entirety by this cautionary
statement.

         The following discussion and analysis is intended to provide details of
the results of operations of the Bank for the three months and nine months ended
September 30, 2003 and 2002 and financial condition at September 30, 2003 and at
December 31, 2002. The following discussion should be read in conjunction with
Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the
Federal Deposit Insurance Corporation in particular as it relates to the
critical accounting policies as discussed in item 14 of the Form 10-K/A.

RESULTS OF OPERATIONS

         Net income for the quarter ended September 30, 2003 increased by
$430,000 or 16.3% to $3.1 million compared to $2.6 million for the same period
in 2002. Diluted earnings per share increased by 16.0% to $0.29 for the three
months ended September 30, 2003 compared with $0.25 for the correspondent period
of 2002.

         The annualized return on average assets ("ROA") and return on average
stockholders' equity ("ROE") were 1.16% and 11.52%, respectively, for the third
quarter of 2003, compared to 1.17% and 11.06%, respectively, for the same period
of 2002.

         Net Income increased by $165,000 or 2.0 % to $8.6 million for the nine
months ended September 30, 2003 compared to $8.4 million for the same period of
2002. Diluted earnings per share increased to $0.80 for the nine months ended
September 30, 2003 compared to $0.79 for the same period of 2002. The annualized
ROA and ROE for nine months ended September 30, 2003 were 1.12% and 10.99%,
respectively, compared to 1.34% and 12.14%, respectively, for the same period of
2002.

NET INTEREST INCOME

         The Bank's primary source of income is net interest income, which is
the difference between interest income from interest-earning assets and interest
paid on interest-bearing liabilities, such as deposits and other borrowings used
to fund those assets. The Bank's net interest income is affected by changes in
the volume of interest-earning assets and interest-bearing liabilities as well
as by changes in yield earned on interest-earning assets and rates paid on
interest-bearing liabilities. The Bank also generates non-interest income,
including the service charges on deposit accounts and other transactional fees.
The Bank's non-interest expenses consist primarily of personnel, occupancy and
equipment expense and other operating expenses. The Bank's results of operations
are affected by its provision for loan losses and may also be significantly
affected by other factors including general economic and competitive conditions,
changes in market interest rates, governmental policies and actions of
regulatory agencies.

         Net interest income before the provision for the loan losses increased
by $963,000 or 11.56% to $9.3 million in the third quarter of 2003, compared to
$8.3 million in the same quarter of 2002. Total interest income increased by
$764,000 or 6.33% to $12.8 million in the third quarter of 2003, compared to
$12.1 million in the same quarter of 2002 primarily due to an increase of $1.9
million in interest and fees on loans and partially offset by a $888,000
decrease in interest on investment securities.



         The increase in interest income is primarily due to the average volume
increase of $148.5 million or 17.20% in interest earning-assets to $1 billion in
the third quarter of 2003 from $863.0 million in the same quarter of 2002. The
major increase in interest earning-assets is primarily due to the increase in
the average loans, including loans held for sale, which loans grew $202.1
million or 33.86% to $798.9 million in the third quarter of 2003 compared to
$596.8 million for the corresponding quarter of 2002. The yield on average
interest earning-assets was 5.02% in the third quarter of 2003 compared to 5.49%
in the same quarter of 2002. Offsetting the increase in average net loans, the
yield on average loans, including loans held for sale, decreased by 58 basis
points to 5.55% in the third quarter of 2003 from 6.13% in the same quarter of
2002, which negatively affected loan interest income. The decrease in the loan
yield was mainly due to a decrease in the average prime rate of 75 basis points
in the third quarter of 2003 compared to the same period of prior year.

          Total interest expense decreased by $200,000 or 5.34% to $3.5 million
for the third quarter of 2003 compared to $3.7 million for the same quarter of
2002. The decrease is mainly due to a decreased interest expense of $176,000
from Time Certificates of Deposit less than $100,000. Average money market
deposits increased $69.6 million or 62.65% to $180.8 million in the third
quarter of 2003 compared with $111.2 million for the corresponding period of
2002. The cost of money market deposits decreased 65 basis points to 1.39% for
the third quarter of 2003 from 2.04% for the corresponding period of 2002.
Average time certificates of deposit of $100,000 or more increased $31.8 million
or 12.20% to $292.0 million in the third quarter of 2003 compared with $260.3
million for the corresponding period of 2002. The cost of average time
certificates of deposit of $100,000 or more decreased 46 basis points to 2.20%
in the third quarter of 2003 from 2.66% in the corresponding quarter of 2002.
The cost of funds decreased 34 basis points to 1.50% in the third quarter of
2003 compared with 1.84% in the same quarter of 2002.

         Net interest income before provision for loan losses increased
$2.5 million or 10.12% to $26.8 million for the nine months ended September 30,
2003 compared to $24.3 million for the same period of 2002. Total interest
income increased by $3.1 million or 9.27% to $37.1 million for the nine months
ended September 30, 2003 compared with $33.9 million in the same period in 2002.
The increase in total interest income was primarily due to a $4.7 million
increase in interest on loans and partially offset by a $1.3 million decrease in
interest on investment securities. The average net loans, including loans held
for sale, for the first nine months of 2003 increased by $170.1 million to
$745.2 million compared with $575.0 million for the same period of 2002.

         Total interest expense increased by $681,000 or 7.10% to $10.3 million
for the nine months ended September 30, 2003, compared with $9.6 million for the
corresponding period of 2002. The increase was primarily attributable to a $1.2
million increase in interest on Federal Home Loan Bank advances. The average
balance of Federal Home Loan Bank advances increased by $47.7 million to $68.6
million in the first nine months of 2003 compared to $20.1 million in the same
period of 2002. The increase in interest on Federal Home Loan Bank advances was
partially offset by a $257,000 decrease in interest expense from Time
Certificates of Deposit $100,000 or more.

NET INTEREST MARGIN

         Net interest margin decreased by 19 basis points to 3.67% for the third
quarter of 2003 compared to 3.86% for the corresponding period of 2002. The
decrease in net interest margin was primarily attributable to the decrease in
the average interest-earning assets yield of 47 basis points to 5.02% in the
third quarter of 2003 compared with 5.49% in the same quarter of 2002. The
decrease in the average interest-earning assets yield was offset by the cost of
funds decrease of 34 basis points to 1.50% in the third quarter of 2003 from
1.84% in the corresponding quarter of 2002.

         Net interest margin decreased by 41 basis points or 10.05% to 3.67% for
the nine months ended September 30, 2003 compared to 4.08% for the corresponding
period of 2002. The decrease in net interest margin was primarily attributable
to the decrease in the average interest-earning assets yield of 60 basis points
to 5.03% for the nine months ended September 30, 2003 compared with 5.63% in the
same period of 2002. The decrease in the average interest-earning assets yield
was offset by the cost of funds decrease of 21 basis points to 1.52% for the
nine months ended September 30, 2003 from 1.73% in the corresponding period of
2002.



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

               DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME
                             (DOLLARS IN THOUSANDS)



                                                For the Three Months Ended                       For the Three Months Ended
                                                    September 30, 2003                               September 30, 2002
                                        ---------------------------------------------   -------------------------------------------
                                                                    Average    % to                             Average      % to
                                           Average       Income/     Rate/    Earning     Average     Income/    Rate/      Earning
                                           Balance       Expense   Yield(45)   Assets     Balance     Expense   Yield(1)     Assets
                                        ------------    --------   --------   -------   -----------   -------   -------     -------
                                                                                                    
ASSETS:
Interest-earning assets:
Loans, net(46)                          $    798,906      11,203      5.55%     78.98%  $   596,800     9,348      6.13%     69.15%
Federal Home Loan Bank stock                   4,246          43      4.05%      0.42%        2,853        17      2.38%      0.33%
Taxable investment securities(47)
    U.S. Treasury Securities                   1,004          23      9.16%      0.10%        1,008        15      5.95%      0.21%
    U.S. Governmental Agencies               161,742       1,444      3.57%     15.99%      183,461     2,338      5.10%     21.26%
Tax-exempt  Investment
Securities:

    State & Municipal Obligation                   0           0         0          0           200         2      4.00%      0.02%
Federal funds sold                            45,129         106      0.93%      4.46%       76,648       329      1.68%      8.88%
Interest-earning deposits                        479           1      0.84%      0.05%        2,066         7      1.34%      0.24%
                                        ------------    --------               ------   -----------    ------               ------
Total interest-earning assets              1,011,506      12,820      5.02%    100.00%      863,036    12,056      5.49%    100.00%
                                        ------------    --------               ------   -----------    ------               ------
Non-interest-earning assets:
Cash and due from banks                       23,394                                         23,441
Premises and equipment, net                    6,260                                          6,699
Other real estate owned                           0                                               0
Customers' acceptance liabilities              1,713                                          1,678
Accrued interest receivable                    3,298                                          3,433
Other assets                                   9,943                                          5,450
                                        ------------                                    -----------
Total non-interest-earning assets             44,608                                         40,701
                                        ------------                                    -----------
Total assets                            $  1,056,114                                    $   903,737
                                        ============                                    ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Interest-bearing liabilities:
Deposits:
    Money market                        $    180,813    $    625      1.39%             $   111,170       571      2.04%
    Super NOW                                  8,000           6      0.30%                   7,800        11      0.56%
    Savings                                   46,406          75      0.65%                  43,481        82      0.75%
    Time certificates of deposit of
      $100,000 or more                       292,040       1,605      2.20%                 260,284     1,744      2.66%
    Other time certificates of deposit       108,078         639      2.37%                 105,843       815      3.05%
Other borrowings                              65,765         578      3.48%                  57,066       504      3.46%
                                        ------------    --------                        -----------    ------
Total interest-bearing liabilities           701,102       3,528      2.02%                 585,644     3,727      2.52%
                                        ------------    --------                        -----------    ------

Non-interest-bearing liabilities:
Demand deposits                              241,197                                        215,886
Other liabilities                              7,350                                          6,879
                                        ------------                                    -----------
Total non-interest-bearing
  liabilities                                248,547                  1.50%                 222,765               1.84%
                                        ------------                                    -----------
Stockholders' equity                         106,465                                         95,328
                                        ------------                                    -----------
Total liabilities and                   $  1,056,114                                    $   903,737
stockholders' equity                    ============                                    ===========

Net interest income                                     $  9,292                                        8,329
                                                        ========                                       ======
Net interest spread(48)                                               3.00%                                        2.97%
                                                                    ======                                       ======
Annualized net interest margin(49)                                    3.67%                                        3.86%
                                                                    ======                                       ======
Ratio of average interest-bearing
 assets to average interest-bearing
 liabilities                                                        144.27%                                      147.37%
                                                                    ======                                       ======


               DISTRIBUTION, YIELD AND RATE ANALYSIS OF NET INCOME
                             (DOLLARS IN THOUSANDS)

- -----------------
(45) Average rates/yields for these periods have been annualized.

(46) Loan includes loans held for sale and net of the allowance for loan losses,
deferred fees and related direct costs. Non-accrual loans are included in the
table for computation purposes, but the foregone interest of such loans is
excluded. Loan fees were $1.6 million and $1.3 million at September 30, 2003 and
2002.

(47) Yields on tax-exempt income have not been computed on a tax equivalent
basis because tax-exempt securities are minimal.

(48) Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.

(49) Represents net interest income as a percentage of average interest-earning
assets.





                                                 For the Nine Months Ended                        For the Nine Months Ended
                                                     September 30, 2003                              September 30, 2002
                                        ---------------------------------------------   -------------------------------------------
                                                                    Average    % to                             Average      % to
                                           Average       Income/     Rate/    Earning     Average     Income/    Rate/      Earning
                                           Balance       Expense   Yield(50)   Assets     Balance     Expense   Yield(1)     Assets
                                        ------------    --------   --------   -------   -----------   -------   -------     -------
                                                                                                    
ASSETS:
Interest-earning assets:
Loans, net(51)                          $    745,169    $ 31,841      5.63%    76.59%   $   575,031    27,143     6.22%      72.31%
Federal Home Loan Bank stock                   3,799         123      4.32%     0.39%         1,974        47     3.17%       0.25%
Taxable investment securities(52)

    U.S. Treasury Securities                   2,360          56      3.16%     0.24%         1,329        59     5.92%       0.17%
    U.S. Governmental Agencies               147,686       4,400      3.97%    15.18%       141,926     5,709     5.36%      17.85%
Tax-exempt  Investment
Securities:

    State & Municipal Obligation                   0           0         0         0            199         6     3.86%       0.03%
Federal funds sold                            71,282         616      1.14%     7.33%        73,397       932     1.67%       9.23%
Interest-earning deposits                      2,612          18      0.92%     0.27%         1,427        15     1.41%       0.18%
                                        ------------    --------              -------   -----------    ------               ------
Total interest-earning assets                972,908      37,054      5.03%   100.00%       795,283    33,911     5.63%     100.00%
                                        ------------    --------              -------   -----------    ------               ------
Non-interest-earning assets:
Cash and due from banks                       23,663                                         25,791
Premises and equipment, net                    6,344                                          8,177
Other real estate owned                            0                                              0
Customers' acceptance liabilities              1,310

                                                                                              1,172
Accrued interest receivable                    3,242                                          3,364
Other assets                                   9,662                                          4,973
                                        ------------                                    -----------
Total non-interest-earning assets             44,221                                         43,477
                                        ------------                                    -----------
Total assets                            $  1,017,129                                    $   838,760
                                        ============                                    ===========
LIABILITIES AND STOCKHOLDERS'

EQUITY:

Interest-bearing liabilities:
Deposits:
    Money market                        $    170,541    $  1,847      1.45%             $   111,378     1,601     1.92%
    Super NOW                                  7,710          17      0.29%                   7,331        31     0.57%
    Savings                                   45,973          86      0.25%                  42,658       238     0.75%
    Time certificates of deposit of
      $100,000 or more                       272,647       4,523      2.22%                 246,633     4,780     2.59%
    Other time certificates of deposit       107,125       2,018      2.52%                 103,245     2,389     3.09%

Other borrowings                              68,583       1,781      3.42%                  20,926       552     3.48%
                                        ------------    --------                        -----------    ------
Total interest-bearing liabilities           672,579      10,272      2.04%                 532,171     9,591     2.41%
                                        ------------    --------                        -----------    ------

Non-interest-bearing liabilities:
Demand deposits                              233,447                                        208,080
Other liabilities                              7,013                                          6,040
                                        ------------                                    -----------
Total non-interest-bearing
liabilities                                  240,460                  1.52%                 214,120               1.73%
                                        ------------                                    -----------
Stockholders' equity                         104,090                                         92,469
                                        ------------                                    -----------
Total liabilities and
stockholders' equity                    $  1,017,129                                    $   838,760
                                        ============                                    ===========

Net interest income                                     $ 26,782                                       24,320
                                                        ========                                       ======
Net interest spread(53)                                               2.99%                                       3.22%
                                                                    ======                                      ======
Annualized net interest margin(54)                                    3.67%                                       4.08%
                                                                    ======                                      ======
Ratio of average
interest-bearing assets
  to average interest-bearing
  liabilities                                                       144.65%                                     149.44%
                                                                    ======                                      ======


- -----------------
(50) Average rates/yields for these periods have been annualized.

(51) Loan includes loans held for sale and net of the allowance for loan losses,
deferred fees and related direct costs. Non-accrual loans are included in the
table for computation purposes, but the foregone interest of such loans is
excluded. Loan fees were $1.6 million and $1.3 million at September 30, 2003 and
2002.

(52) Yields on tax-exempt income have not been computed on a tax equivalent
basis because tax-exempt securities are minimal.

(53) Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.

(54) Represents net interest income as a percentage of average interest-earning
assets.



         The following table sets forth, for the years 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 changes in
average daily balances (volume) or changes in interest rates (rate). The
variances attributable to both the volume and rate changes have been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar amount of the changes in each:



                                                    FOR THE NINE MONTH ENDED
                                                          SEPTEMBER 30,
                                                         2003 VS. 2002
                                                     INCREASES (DECREASES)
                                                       DUE TO CHANGE IN
                                            VOLUME           RATE(1)             TOTAL
                                            ------   ----------------------     -------
                                                     (DOLLARS IN THOUSANDS)
                                                                       
EARNING ASSETS:
INTEREST INCOME:
   Loans, net(2)..................          $7,455           (2,757)             4,698
   Federal Home Loan Bank stock...              55               21                 76
   Taxable investment securities:
     U. S. Treasury securities....              32              (35)                (3)
     U. S. Government agencies....             224           (1,533)            (1,309)
   Tax-exempt securities:(3)
     State and Municipal Obligation             (6)               -                 (6)
   Federal funds sold.............             (26)            (290)              (316)
   Interest-earning deposits......               9               (6)                 3
                                            ------          -------             ------
       Total net change
           in interest income.....          $7,743          ($4,600)            $3,143
                                            ------          -------             ------
DEPOSITS AND BORROWED FUNDS:
INTEREST EXPENSE:
   Money market deposits..........             707             (461)               246
   Super NOW......................               2              (15)               (13)
   Savings deposits...............              17             (169)              (152)
   Time certificates of deposit in
     denominations of $100,000
      or more.....................             473             (731)              (258)
   Other time deposits............              87             (458)              (371)
   Other borrowings...............           1,237               (8)             1,229
                                            ------          -------             ------
       Total net change
           in interest expense....           2,523           (1,842)               681
                                            ------          -------             ------
Change in net interest income.....          $5,220          ($2,758)            $2,462
                                            ======          =======             ======


PROVISION FOR LOAN LOSSES

         Provisions for loan losses are made monthly, to cover incurred losses
as a result of credit risks. Credit risk is inherent in making loans. The Bank
sets aside an allowance for loan losses through charges to earnings. The charges
are reflected in the income statement as the provision for loan losses.
Specifically, the provision for loan losses represents the amount charged
against current period earnings to achieve an allowance for loan losses that in
Management's judgment is adequate to absorb incurred losses inherent in the
Bank's loan portfolio.

         For the third quarter of 2003 the provision for loan losses amounted to
$400,000 compared with $200,000 in the corresponding period of 2002. The
provision for loan losses amounted to $1,300,000 for the nine months ended
September 30, 2003 compared with $400,000 for the same period of 2002. The
increase was mainly attributable to a strong loan growth in 2003. On a quarterly
basis, management performs an analysis of the adequacy of the allowance for loan
losses. The results of this analysis for the quarter ended September 30, 2003
determined that the allowance was adequate to absorb incurred losses inherent in
the portfolio. The procedures for monitoring the adequacy of the

- -----------------
(1) Rates for these periods on which calculations are based have been
annualized.

(2) Loan fees net of direct cost have been included in the calculation of
interest income. Loan fees were $571,000 and $436,000 for the nine months ended
September 30, 2003 and 2002, respectively. Loans are net of the allowance for
loan losses, deferred fees and related direct costs.

(3) Yields on tax-exempt income have not been computed on a tax equivalent
basis, because the percentage of tax-exempt securities is minimal.



allowance, as well as detailed information concerning the allowance itself, are
included below under "Allowance for loan losses."

NON-INTEREST INCOME

         Non-interest income increased $1.1 million or 46.42% to $3.5 million in
the third quarter of 2003 compared to $2.4 million in the same quarter of 2002.
The increase resulted mainly from a $1.0 million gain recognized from the sale
of SBA loans, a $100,000 gain recognized from the sale of investment securities
and a $83,000 increase in other operating income in the third quarter of 2003.
The other operating income consists of credit card related fees, mortgage loan
related fees, merchant discount fees, remittance and cable fees and other
various fees. The increase was partially offset by a decrease of $52,000 on
service charges on deposit accounts in the third quarter of 2003.

         Non-interest income increased $729,000 or 8.51% to $9.3 million for the
nine months of 2003 compared to $8.6 million in the same period of 2002. The
increase resulted mainly from a $1.8 million gain recognized from the sale of
loans during the first nine months of 2003 and was partially offset by a
decrease of $1.2 million on the sale of San Francisco premises during the first
nine months of 2002. The Bank is planning to continue to originate and sell the
guaranteed portion of SBA loans in the last quarter of 2003.

         The following table sets forth the various components of the Bank's
non-interest income for the periods indicated:

                               NON-INTEREST INCOME
                             (Dollars in thousands)



                                             Three Months Ended                   Increase (Decrease)
                                         ---------------------------           -------------------------
                                          09/30/03         09/30/02               Amount       Percent(%)
                                         ----------       ----------           -----------     ---------
                                                                                   
Service charges on deposit accounts      $    1,550       $    1,602           $       (52)      (3.25)%
Remittance fees                                 216              211                     5        2.37
Letter of credit related fees                   180              216                   (36)     (16.67)
Gain on sale of loans                         1,021               --                 1,021         NMV
Gain on sale of investment securities           100               --                   100         NMV
Other operating income                          469              386                    83       21.50
                                         ----------       ----------           -----------       -----
        Total                            $    3,536       $    2,415           $     1,121       46.42%
                                         ==========       ==========           ===========       =====




                                              Nine Months Ended                    Increase (Decrease)
                                         ---------------------------           -------------------------
                                          09/30/03         09/30/02              Amount        Percent(%)
                                         ----------       ----------           -----------     ---------
                                                                                   
Service charges on deposit accounts      $    4,781       $    4,803           $       (22)      (0.46)%
Remittance fees                                 678              664                    14        2.11
Letter of credit related fees                   578              619                   (41)      (6.05)
Gain on sale of premise                          --            1,194                (1,194)    (100.00)
Gain on sale of loans                         1,801               --                 1,801         NMV
Other operating income                        1,354            1,283                    71        5.53
Gain on sale of investment securities           100               --                   100         NMV
                                         ----------       ----------           -----------       -----
        Total                            $    9,292       $    8,563           $       729        8.51%
                                         ==========       ==========           ===========       =====




NON-INTEREST EXPENSE

         Non-interest expense increased by $895,000 or 13.95% to $7.3 million in
the third quarter of 2003, compared to $6.4 million in the corresponding quarter
of 2002. The increase is mainly attributable to an increase of $676,000 in
salaries and employee benefits and a $225,000 increase in other expenses offset
by a decrease of $24,000 in communication related expenses and a decrease of
$20,000 in advertising and public relations. An increase in salaries and
employee benefits was mainly attributable to the increase in number of
employees, medical expenses and annual bonus accrual for 2003. Other operating
expenses consist of other loan related expenses, regulatory assessment expenses,
employee related fees and other outside fees. The efficiency ratio for the third
quarter of 2003 was 56.99% compared to 59.72% for the corresponding quarter of
2002.

         Non-interest expense increased by $1.7 million or 9.26% to $20.5
million for the nine months ended September 30, 2003, compared to $18.7 million
in the corresponding period of 2002. The increase is mainly attributable to an
increase of $1.6 million in salaries and employee benefits and an increase of
$555,000 in other operating expenses. The increase in salaries and employee
benefits mainly resulted from the increases in number of employees, medical
expenses and annual bonus accrual for 2003. The efficiency ratio for the nine
months of 2003 was 56.73% compared to 56.96% for the corresponding period of
2002.

         The following table presents the components of the non-interest expense
with the amount and percentage changes for the periods indicated:

                              NON-INTEREST EXPENSE
                             (Dollars in thousands)



                                          Three Months Ended          Increase / (Decrease)
                                     --------------------------    --------------------------
                                      09/30/03         09/30/02     Amount         Percent(%)
                                     ---------         --------    --------       -----------
                                                                      
Salaries and employee benefits       $   3,784         $  3,108    $    676           21.75%
Security guards                            221              240         (19)          (7.90)
Net occupancy expense                      713              717          (4)          (0.47)
Equipment expense                          331              313          18            5.81
Data processing                            486              482           4            0.80
Office supplies                            115               99          16           15.79
Legal and professional                     295              272          23            8.27
Advertising and public relations           190              210         (20)          (9.20)
Communication expenses                     247              271         (24)          (8.83)
Other operating expenses                   929              704         225           31.75
                                     ---------         --------    --------           -----
        Total                        $   7,311         $  6,416    $    895           13.94%
                                     =========         ========    ========           =====




                                         Nine Months Ended             Increase / (Decrease)
                                     --------------------------    --------------------------
                                     09/30/03          09/30/02     Amount          Percent(%)
                                     ---------         --------    --------       ------------
                                                                      
Salaries and employee benefits       $  10,527            8,926    $  1,601           17.94%
Security guards                            661              716         (55)          (7.65)
Net occupancy expense                    2,109            2,168         (59)          (2.72)
Equipment expense                        1,046            1,043           3            0.29
Data processing                          1,452            1,441          11            0.75
Office supplies                            315              354         (40)         (11.20)
Legal and professional                     710              965        (254)         (26.42)
Advertising and public relations           547              575         (28)          (4.81)
Communication related expense              764              763           1            0.14
Other operating expenses                 2,333            1,778         555           31.23
                                     ---------         --------    --------           -----
        Total                        $  20,464           18,729    $  1,735            9.26%
                                     =========         ========    ========           =====




INCOME TAX

         The effective tax rate for the third quarter of 2003 was 40.06%
compared to 36.12% for the same period of 2002. The effective tax rate for the
nine months ended September 30, 2003 was 40.03% compared to 38.81% for the same
period of 2002. The effective tax rate fluctuations are strongly influenced by
California state franchise taxes net of Federal tax benefits under the Water's
Edge Unitary method.

         The Bank files its California tax return using the Water's Edge Unitary
method. When computing its California franchise tax liability, the California
law requires that the Bank consider the taxable income allocated from estimated
combined net taxable income using the apportionment factor of property, payroll
and revenues over combined property, payroll and revenue of its foreign-owned
majority shareholder.

FINANCIAL CONDITION

         The Bank's total assets were $1.1 billion at September 30, 2003, an
increase of $120.8 million or 12.89% from the $937.0 million at December 31,
2002. The net increase is attributable to a $148.3 million or 21.71% increase in
total gross loans, including loans held for sale, and offset by a $38.0 million
or 60.8% decrease in Federal funds sold and a decrease of $2.6 million or 10.92%
in cash and due from banks. Total deposits increased by $78.0 million or 10.26%
to $838.0 million at September 30, 2003 from $760.0 million at December 31,
2002. Time certificates of deposit of $100,000 or more increased $47.6 million
or 18.40% to $306.3 million at September 30, 2003 from $258.7 million at
December 31, 2003. Noninterest bearing deposits increased $19.2 million or 8.57%
to $242.5 million at September 30, 2003 from $223.4 million at December 31,
2003. Money market deposits and savings deposits increased $13.5 million or
7.90% to $183.9 million at September 30, 2003 from $170.5 million from December
31, 2002. The Bank's borrowings from the Federal Home Loan Bank were $105.0
million at September 30, 2003 compared to $70.0 million at December 31, 2002.
Stockholders' equity increased $7.3 million or 7.27% to $108.2 million at
September 30, 2003 from $100.9 million at December 31, 2002.

INTEREST-EARNING ASSET MIX

         Total earning assets amounted to $1.0 billion at September 30, 2003,
compared with $894.5 million at December 31, 2002, representing an increase of
$120.3 million or 13.45%. The composition of the earning assets changed slightly
at September 30, 2003 compared with December 31, 2002. The net loans as a
percentage of total earning assets increased 7.39% to 80.95% and the percentage
of Federal funds sold to the total earning assets decreased 65.45% to 2.41% at
September 30, 2003 compared to December 31, 2002. On an average basis,
interest-earning assets amounted to $1.0 billion, an increase of $148.5 million
or 17.21% for the three months ended September 30, 2003 compared to $863.0
million for the same period of 2002. On an average basis, interest-earning
assets amounted to $972.9 million, an increase of $177.6 million or 22.33% for
the first nine months of 2003 compared to $795.3 million for the same period of
2002.

         The table below shows the changes in the earning asset mix as of the
dates indicated:



                                                                  (Dollars in thousands)
                                                   As of  09/30/03                     As of 12/31/02
                                              --------------------------        ----------------------------
Types of earning assets                          Amount        Percent(%)         Amount           Percent(%)
                                              -----------      ---------        ----------         ----------
                                                                                       
Federal funds sold                            $    24,500          2.41%        $   62,500            6.99%
Federal Home Loan Bank stock                        5,790          0.57              3,538            0.40
Securities held-to-maturity                        68,272          6.73             89,314            9.98
Securities available-for-sale                      94,345          9.30             64,701            7.23
Net loans, including loans available for          821,464         80.95            674,258           75.38
sale
Interest-bearing due from banks                       466          0.04                211            0.02
                                              -----------        ------         ----------          ------
        Total earning assets                  $ 1,014,837        100.00%        $  894,522          100.00%
                                              ===========        ======         ==========          ======




SECURITIES

         The Bank classifies its securities as held-to-maturity or
available-for-sale. The securities classified as held-to-maturity are those that
the Bank has the positive intent and ability to hold until maturity. These
securities are carried at amortized cost. The securities that could be sold in
response to changes in interest rate, increased loan demand, liquidity needs,
capital requirements or other similar factors, are classified as securities
available-for-sale. These securities are carried at fair value, with unrealized
gains or losses reflected net of tax as a component of comprehensive income
Accumulated other comprehensive income (net of tax) at September 30, 2003 was
$53,421.

         Total investment securities increased $8.6 million or 5.59% to $162.6
million at September 30, 2003 from $154.0 million at December 31, 2002. During
the third quarter of 2003, the Bank purchased available-for-sale securities in
the amount of $31.9 million.

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

                              INVESTMENT PORTFOLIO
                             (Dollars in thousands)



                                       As of  09/30/03                  As of 12/31/02
                                  -------------------------       --------------------------
                                  Amortized         Fair          Amortized          Fair
                                    Cost            Value            Cost            Value
                                  ---------       ---------       ---------        ---------
                                                                       
AVAILABLE-FOR-SALE:
U.S. Treasury securities          $   1,002       $   1,043       $   1,003        $   1,074
U.S. Government agencies             39,730          39,826          25,996           26,290
Mortgage-backed securities (1)       50,509          50,469          34,000           34,730
State and political subdivision       3,018           3,007           2,507            2,607
                                  ---------       ---------       ---------        ---------
   Total available-for-sale       $  94,259       $  94,345       $  63,506        $  64,701
                                  =========       =========       =========        =========
HELD-TO-MATURITY:
Mortgage-backed securities (1)       68,272          68,323          89,314           90,799
                                  ---------       ---------       ---------        ---------
   Total held-to-maturity            68,272          68,323          89,314           90,799
                                  ---------       ---------       ---------        ---------
   Total investment securities    $ 162,531       $ 162,668       $ 152,820        $ 155,500
                                  =========       =========       =========        =========


- -----------------
(1) Principal balance may be prepaid before contracted maturity date.



         The following table summarizes the monthly and repricing schedule of
the Bank's investment securities at their carrying values and their average
weighted yield at September 30, 2003.

                  INVESTMENT MATURITIES AND REPRICING SCHEDULE
                             (Dollars in thousands)
                            As of September 30, 2003



                                                         After One But       After Five but
                                    Within One Year    Within Five Years    Within Ten Years    After Ten Years         Total
                                  ------------------  -------------------  ------------------  ------------------  -----------------
                                   Amount   Yield(1)   Amount    Yield(1)   Amount   Yield(1)   Amount   Yield(1)  Amount   Yield(1)
                                  --------  --------  --------  ---------  --------  --------  --------  --------  -------  --------
                                                                                              
AVAILABLE-FOR-SALE:
U.S. Treasury securities          $  1,043    5.82%   $                %   $      -       -%   $      -      -%   $  1,043    5.82%
U.S. Government agencies                                34,904     2.83       4,922    3.00           -      -      39,826    2.85
Mortgage-backed securities(2)       14,596    3.24       5,673     6.07      14,887    3.86      15,313   4.34      50,469    4.07
State and political subdivisions         -       -       1,029     6.17       1,978    2.76                          3,007    3.93
                                  --------    ----    --------     ----    --------    ----    --------   ----     -------    ----
   Total available-for-sale       $ 15,639    3.41%   $ 41,606     3.35%   $ 21,787    3.56%   $ 15,313   4.34%   $ 94,345    3.57%
                                  ========    ====    ========     ====    ========    ====    ========   ====     =======    ====
HELD-TO-MATURITY:
Mortgage-backed securities(2)            -       -      58,652     4.10           -       -       9,620   3.98      68,272    4.09
                                  --------    ----    --------     ----    --------    ----    --------   ----     -------    ----
   Total held-to-maturity                -       -      58,652     4.10           -       -       9,620   3.98      68,272    4.09
                                  --------    ----    --------     ----    --------    ----    --------   ----     -------    ----
     Total investment securities  $ 15,639    3.41%   $100,258     3.79%   $ 21,787    3.56%   $ 24,933   4.20%    162,617    3.78%
                                  ========    ====    ========     ====    ========    ====    ========   ====     =======    ====


(5)  Yield on tax-exempt obligations has not been computed on a tax equivalent
     basis because the percentage of tax-exempt securities is minimal.

(6)  The mortgage-backed securities reflect stated maturities and repricing
     schedule and not anticipated prepayments.

LOANS

         The Bank experienced strong loan growth in the first nine months of
2003. The Bank achieved record loan production of $327.3 million during the
first nine months of 2003 resulting in a $148.3 million increase in gross loans
to $831.5 million at September 30, 2003 from $683.1 million at December 31,
2002. Total commercial and industrial loans increased $23.4 million or 18.63% to
$148.7 million at September 30, 2003 from $125.4 million at December 31, 2002.
Commercial real estate loans increased $123.3 million or 31.16% and residential
mortgage loans decreased $30,000 or 0.08% during the first nine months of 2003.



         The following table sets forth the composition of the Bank's loan
portfolio as of the dates indicated:

                           LOAN PORTFOLIO COMPOSITION
                             (Dollars in thousands)



                                     As of 09/30/03             As of 12/31/02
                                 -----------------------   -------------------------
                                                Percent                     Percent
                                   Amount       of Total     Amount         of Total
                                 ---------     ---------   ---------       ---------
                                                               
Commercial and industrial        $ 148,719       17.89%    $ 125,363         18.35%
Installment loans                   21,300        2.56        21,225          3.11
Real estate loans:
   Commercial                      519,134       62.44       395,807         57.94
   Residential mortgage             37,429        4.50        37,459          5.48
Home equity                          5,983        0.72         5,993          0.88
SBA                                 78,261        9.41        74,560         10.91
Other (1)                            3,269        0.39         3,619          0.53
Trade Finance                       15,330        1.84        12,488          1.83
Bills Bought                         2,037        0.24         6,617          0.97
                                 ---------      ------     ---------        ------
      Total gross loans (2)      $ 831,462      100.00%    $ 683,131        100.00%
                                 =========      ======     =========        ======


- -----------------
(1) Consists predominantly of credit card loans.

(2) Net of unearned income and participation loans sold.

NON-PERFORMING ASSETS

         Non-performing assets include loans past due 90 days or more and still
accruing interest, non-accrual loans and OREO. Total non-performing assets at
September 30, 2003 decreased $734,000 to $1.3 million, compared with December
31, 2002. Total non-performing assets were 0.16% of total assets at September
30, 2003, compared to 0.30 % of total assets at December 31, 2002.

         As of September 30, 2003, the Bank had no OREO. The non-performing loan
coverage ratio, defined as the allowance for loan losses to non-performing
loans, increased to 773.76% as of September 30, 2003 from 437.96% at December
31, 2002.

         The following table provides information with respect to the components
of the Bank's non-performing assets as of the dates indicated.


                              NON-PERFORMING ASSETS
                             (Dollars in thousands)



                              9/30/2003  12/31/2002  9/30/2002
                              ---------  ----------  ---------
                                            
NON-ACCRUAL LOANS:

Commercial and industrial      $ 1,013    $ 1,091     $ 1,342
Installment loans                   15         28          30
Real estate loans:
   Commercial                        -          -       2,273
   Home mortgage                    99        805         861
SBA                                 81          -         230
Trade Finance                        -         74          58
                               -------    -------     -------
     Total                     $ 1,208    $ 1,998     $ 4,794


                                        (Table continues on the following page.)



                                                               9/30/2003    12/31/2002   9/30/2002
                                                               ---------    ----------   ---------
                                                                                
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
  (AS TO PRINCIPAL OR INTEREST):

Installment loans                                                     -            -           16
Other                                                                84           28            -
                                                                 ------       ------       ------
     Total                                                       $   84       $   28       $   16
                                                                 ------       ------       ------
     Total non-performing loans                                  $1,292       $2,026       $4,810
Other real estate owned                                               -            -            -
                                                                 ------       ------       ------
Total non-performing assets                                      $1,292       $2,026       $4,810
                                                                 ======       ======       ======

Non-performing loans as a percentage of total gross loans          0.16%        0.30%        0.73%
Non-performing assets as a percentage of total gross loans
and other real estate owned                                        0.16%        0.30%        0.73%


ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses amounted to $10.0 million or 1.20% of
total loans as of September 30, 2003 compared to $8.9 million or 1.30% of total
loans at December 31, 2002.

         The following table presents information relating to the allowance for
loan losses for the periods indicated:






                                                                               (Dollars in thousands)
                                                                    YTD           YTD           YTD
                                                                  09/30/03      12/31/02     09/30/02
                                                                  --------      --------     --------
                                                                                    
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period                                     $ 8,873      $ 9,467      $  9,467
Provision for loan losses                                            1,300        1,100           400
Loans charged-off                                                     (502)      (1,805)       (1,323)
Recoveries of charged-off loans                                        326          111            98
                                                                   -------      -------      --------
Balance at end of period                                           $ 9,997      $ 8,873      $  8,642
                                                                   =======      =======      ========

RATIOS:
Net loan charge-offs to average total loans                           0.03%        0.28%         0.28%
Provision for loan losses to average total loans                      0.23         0.18          0.09
Allowance for loan losses to gross loans at end of period             1.20         1.30          1.32
Allowance for loan losses to total non-performing loans             773.76       437.96        179.67
Net loan charge-offs to allowance for loan losses at end of
 period                                                               2.35        19.10         18.91
Net loan charge-offs to provision for loan losses                    13.53       154.05        306.45


         In determining the allowance for loan losses, management continues to
assess the risk inherent in the loan portfolio, the possible impact of known and
potential problem loans, and other factors such as portfolio composition, loan
concentration, and trends in local economic conditions.

         The Bank formally assesses its allowance for loan losses on a quarterly
basis. The allowance for loan losses begins with Management reviewing each
individual classified and criticized loan in detail, and evaluating, among other
things, the adequacy of collateral, payment record, current loan status and
borrowers' financial capacity. A loan loss allowance is assigned to each
impaired loan. Loans categorized as impaired from this quarterly allocation of
loan loss allowance are based upon the specifics of the loans' circumstances,
including updated collateral value, borrowers' or guarantors' financial
capacity, payment record and recent conversations with the borrower.
Additionally, each quarter the Bank updates its twelve-quarter loss migration
analysis for its commercial loan pool, six-quarter loss migration analysis for
its homogeneous loan pool and four-quarter loss migration analysis for its
credit card loan pool to drive the rolling respective loan loss experience
percentages. These loan pools are assigned an appropriate allowance factor based
upon the Bank's historical charge off experience, other factors, and then
accounts for qualitative adjustments that take into consideration current
conditions. The allowance is maintained at a level the Bank considers adequate
to cover inherent risk of probable loss associated with its loan portfolio under
prevailing and anticipated economic conditions.

         Based on the Bank's evaluation process and the methodology to determine
the level of the allowance for loan losses, management believes the allowance
level as of September 30, 2003 to be adequate to absorb the incurred losses
inherent in the loan portfolio. However, no assurance can be given that the Bank
will not sustain losses in any given period which could be substantial in
relation to the size of the allowance.

DEPOSITS

         The Bank's total deposits amounted to $838.0 million at September 30,
2003, an increase of $78.0 million from $760.0 million at December 31, 2002. The
Bank's average deposits increased $118.1 million or 16.42% to $837 million for
the first nine months of 2003 from $719.3 million for the same period of 2002.
The average money market accounts increased $59.2 million or 53.12% to $170.5
million for the first nine months of 2003 from $111.4 million for the same
period of 2002. The average non-interest bearing deposits increased $26.3
million or 12.30% to $240.5 million for the first nine months of 2003 from
$214.1 million for the same period of 2002. The ratio of average
noninterest-bearing



deposits to average total deposits was 26.34% for the first nine months of 2003
and 28.89% for the same period of 2002. The Bank's average total cost of
deposits was 1.52% for the first nine months of 2003 and 1.73% for the same
period of 2002. The Bank does not hold any brokered deposits.

         The following table illustrates the deposit mix as of the dates
indicated:



                                                     (Dollars in thousands)
                                     As of  September 30, 2003      As of December 31, 2002
                                     -------------------------      -----------------------
                                       Amount          Percent        Amount        Percent
                                     ---------         -------      ---------       -------
                                                                        
Types of deposits:
Demand, non-interest-bearing         $ 242,528          28.94%      $ 223,377        29.39%
Money market accounts                  137,790          16.44         126,272        16.61
Super Now                                8,607           1.03           7,602         1.00
Savings                                 46,158           5.51          44,215         5.82
Time certificates of deposits of
    $100,000 or more                   306,252          36.55         258,653        34.03
Other time deposits                     96,632          11.53          99,877        13.15
                                     ---------         ------       ---------       ------
    Total deposits                   $ 837,967         100.00%      $ 759,996       100.00%
                                     =========         ======       =========       ======


OTHER BORROWINGS

         The Bank's borrowings from Federal Home Loan Bank amounted to $105.0
million at September 30, 2003 and $70.0 million at December 31, 2002.

CAPITAL RESOURCES

         As of September 30, 2003, stockholders' equity was $108.2 million or
10.23% of total assets, compared with $100.9 million or 10.77% as of December
31, 2002.

         The Bank is required to maintain a minimum ratio of qualifying total
capital to total risk-weighted assets of 8.0% ("Total Risk-Based Capital
Ratio"), at least one-half of which must be in the form of Tier 1 capital, and a
ratio of Tier 1 capital to total risk-weighted assets of 4.0% ("Tier 1
Risk-Based Capital Ratio"). As of September 30, 2003 and December 31, 2002, the
Bank's Total Risk-Based Capital Ratios were 14.71% and 15.95%, respectively, and
its Tier 1 Risk Based Capital Ratios were 13.46% and 14.70%, respectively. The
Bank's regulatory capital continued to well exceed the regulatory minimum
requirements on September 30, 2003; however, the Bank is no longer considered to
be "well capitalized" as a result of Consent Agreement entered into with Federal
Deposit Insurance Corporation in March 2002. See Part II. Item 1. "Legal
Proceedings." To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table and not be subject to any regulatory order, agreement or directive.

         Banks are also required to maintain a leverage capital ratio designed
to supplement the risk-based capital guidelines. Banks that have received the
highest rating of the five categories used by regulators to rate banks and are
not anticipating or experiencing any significant growth must maintain a ratio of
Tier 1 capital (net of all intangibles) to adjusted total assets ("Leverage
Capital Ratio") of at least 3%. Pursuant to federal regulations, banks must
maintain capital levels commensurate with the level of risk to which they are
exposed, including the volume and severity of problem loans, and federal
regulators may, however, set higher capital requirements when a bank's
particular circumstances warrant. The Bank's Leverage Capital Ratio was 10.40%
and 11.56% at September 30, 2003 and December 31, 2002, respectively.

         The following table presents the Bank's regulatory capital amount and
ratios as of September 30, 2003 and December 31, 2002.





                                                     AS OF SEPTEMBER 30, 2003
                                                      (DOLLARS IN THOUSANDS)
                               -------------------------------------------------------------------------
                                                                                TO BE WELL CAPITALIZED
                                                         FOR CAPITAL            UNDER PROMPT CORRECTIVE
                                       ACTUAL          ADEQUACY PURPOSE            ACTION PROVISIONS
                               -------------------  -----------------------    -------------------------
                                 AMOUNT     RATIO    AMOUNT        RATIO        AMOUNT         RATIO
                               ---------   -------  --------    -----------    ---------    ------------
                                                                          
Total capital (to risk-
    weighted assets)           $ 118,106    14.71%  $ 64,232    > or = 8.0%     $ 80,290    > or = 10.0%
Tier I capital (to risk-
    weighted assets)             108,109    13.46     32,127    > or = 4.0        48,191     > or = 6.0
Tier I capital (to average
    assets)                      108,109    10.40     41,580    > or = 4.0        51,975     > or = 5.0
                               =========    =====   ========    ==========     =========    ===========




                                                     AS OF DECEMBER 31, 2002
                                                      (DOLLARS IN THOUSANDS)
                               -------------------------------------------------------------------------
                                                                                TO BE WELL CAPITALIZED
                                                         FOR CAPITAL            UNDER PROMPT CORRECTIVE
                                      ACTUAL           ADEQUACY PURPOSE            ACTION PROVISIONS
                               -------------------  -----------------------    -------------------------
                                 AMOUNT     RATIO    AMOUNT        RATIO        AMOUNT         RATIO
                               ---------   -------  --------    -----------    ---------    ------------
                                                                          
Total capital (to risk-
    weighted assets)           $ 108,689    15.95%  $ 54,515    > or = 8.0%     $ 68,144    > or = 10.0%
Tier I capital (to
    risk-weighted assets)        100,169    14.70     27,257    > or = 4.0        40,885     > or = 6.0
Tier I capital (to
    average assets)              100,169    11.56     34,671    > or = 4.0        43,338     > or = 5.0
                               =========    =====   ========    ==========      ========    ===========


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LIQUIDITY AND INTEREST RATE SENSITIVITY

         Liquidity is the Bank's ability to maintain sufficient cash flow to
meet deposit withdrawals and loan demands and to take advantage of investment
opportunities as they arise. The Bank's principal sources of liquidity have been
growth in deposits and proceeds from the maturity of securities and repayments
from loans. To supplement its primary sources of liquidity, the Bank maintained
$131.6 million of borrowing capacity under a collateralized line of credit with
the Federal Home Loan Bank of San Francisco.

         At September 30, 2003, the Bank's available liquidity totaled $277.5
million, which was approximately 33.11% of total deposits and 89.92% of total
volatile liabilities compared to $186.4 million at December 31, 2002, which was
approximately 24.52% of total deposits and 71.85% of total volatile liabilities.
The volatile liabilities are comprised of time certificates of deposit of
$100,000 or more and other volatile deposits. The Bank's policy is to maintain a
minimum fund availability to total deposit and borrowing ratio of 20% and a
minimum fund availability to total volatile liability ratio of 50%. The Bank
considers any excessive cash holdings or balances in due from banks, overnight
Fed funds sold, uncollateralized available-for-sale securities and readily
available Federal Home Loan Bank advances as funds availability. The Bank
follows the regulatory definition of volatile liabilities, which is Jumbo CD's.
The ratios of the average balance of Jumbo CD's to average total deposits for
September 30, 2003 and December 31, 2002 were 32.06% and 33.99%, respectively.

         The Bank had a significant portion of its time deposits maturing within
one year or less as of September 30, 2003. Management anticipates that there may
be some outflow of these deposits upon maturity due to the keen competition in
the Bank's market place. However, based on its historical runoff experience, the
Bank expects the outflow will be minimal and can be replenished through its
normal growth in deposits.

         Market risk is the risk of loss from adverse changes in market prices
and rates. The Bank's market risk arises primarily from interest rate risk
inherent in its lending, investment and deposit taking activities. The Bank's
profitability is affected by fluctuations in interest rates. A sudden and
substantial change in interest rates may adversely impact the Bank'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 Bank actively monitors and manages its interest rate risk through
analyzing the repricing characteristics of its loans, securities, and deposits
on an on-going basis. One of the primary goals is to optimize net income under
varying interest rate environments. The focus of this process is the
development, analysis, implementation and monitoring of earnings enhancement
strategies that provide stable earnings and capital levels during periods of
changing interest rates. Management uses both interest rate sensitivity
analysis, and a simulation model to measure and quantify the impact to the
Bank's profitability on the market value of its assets and liabilities.

         The interest rate sensitivity analysis measures the repricing
mismatches between assets and liabilities. The interest rate sensitivity gap is
determined by subtracting the amount of liabilities from the amount of assets
that reprice in a particular time interval. A liability sensitivity results when
more liabilities than assets reprice or mature within a given period.
Conversely, an asset sensitive position results when more assets than
liabilities reprice within a given period. At September 30, 2003, the Bank
maintained positive one-year gap position of $57.0 million or 5.4% of total
assets. This compared with a positive one-year gap position of $86.5 million or
9.23% of total assets at December 31, 2002. The increase in gap was primarily
due to a net increase in rate sensitive assets over rate sensitive liabilities.
Because the Bank's assets tend to reprice more frequently than its liabilities
over a twelve months horizon, the Bank will realize lower net interest income in
a falling rate environment.

         Since an interest rate sensitivity analysis does not measure the timing
differences in the repricing of assets and liabilities, the Bank uses a
simulation model to quantify the extent of the differences in the behavior of
the lending and funding rates, so as to project future earnings or market values
under alternative interest scenarios.

         The following table presents the interest rate sensitivity of the
Bank's interest-earning assets and interest-bearing liabilities as of September
30, 2003 using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms. Actual payment patterns may differ from contractual payment patterns.





                                                         INTEREST RATE SENSITIVITY ANALYSIS
                                                              (Dollars in thousands)
                                                               At September 30, 2003
                                                               ---------------------
                                                         Amounts Subject to Repricing Within
                                                         -----------------------------------
                                                             3-12                  After 5
                                             0-3 Months     Months    1-5 Years     Years       Total
                                             ----------   ---------   ---------   --------   -----------
                                                                              
INTEREST-EARNING ASSETS:
     Total Loans*                            $ 691,166    $   5,894   $ 55,073    $ 79,689   $   831,822
     Federal Home Loan Bank Stock                5,790           --         --          --         5,790
     Investment securities                      11,930        3,709    100,258      46,720       162,617
     Federal Funds sold                         24,500           --         --          --        24,500
     Interest-earning deposits                     466           --         --          --           466
                                             ----------   ---------   ---------   --------   -----------
          Total                                733,852        9,603    155,331     126,409     1,025,195
INTEREST-BEARING LIABILITIES:
     Money market                              137,790           --         --          --       137,790
     NOW                                         8,607           --         --          --         8,607
     Savings deposits                           46,158           --         --          --        46,158
     Time deposits of $100,000 or more         128,806      172,699      4,747          --       306,252
     Other Time deposits                        38,879       48,549      9,204          --        96,632
     Borrowed funds                             70,000       35,000         --          --       105,000
                                             ----------   ---------   ---------   --------   -----------
          Total                              $ 430,240    $ 256,248   $ 13,951    $     --   $   700,439
                                             ==========   =========   =========   ========   ===========

Interest rate sensitivity gap                $ 303,612    $(246,645)  $141,380    $126,409   $   324,756

Cumulative interest rate sensitivity gap     $ 303,612    $  56,967   $198,347    $324,756

Cumulative interest rate sensitivity gap
  ratio as a percentage of total assets          28.70%        5.39%     18,75%      30.70%


*Loans including loans held- for-sale, unearned fees and excluding Non-Accrual
Loans

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

         The following table sets forth the Bank's estimated net interest income
over a twelve month period and NPV based on the indicated changes in market
interest rates as of September 30, 2003.





                         % CHANGE IN
                         -----------
      CHANGE         NET INTEREST INCOME    % CHANGE IN
      ------         -------------------    -----------
(IN BASIS POINTS)    (NEXT TWELVE MONTHS)       NPV
- -----------------    --------------------       ---
                                      
       +200                 10.99%            8.07%

       +100                  5.37             3.81

          0                     -                -

       -100                 -8.34            -1.23


         As indicated above, the net interest income increases (decreases) as
market interest rates rise (fall). This is due to the fact that the Bank
maintained a positive gap and also a substantial portion of the interest earning
assets reprice immediately after the rate change, interest-bearing liabilities
reprice slower than interest-earning assets, and interest-bearing liabilities do
not reprice to the same degree as interest earning assets, given a stated change
in the interest rate. The NPV increases (declines) as the interest income
increases (decreases) since the change in the discount rate has a greater impact
on the change in the NPV than does the change in the cash flows.

         Management believes that the assumptions used by it to evaluate the
vulnerability of the Bank's operations to changes in interest rates approximate
actual experience and considers them reasonable; however, the interest rate
sensitivity of the Bank's assets and liabilities and the estimated effects of
changes in interest rates on the Bank's net interest income and NPV could vary
substantially if different assumptions were used or actual experience differs
from the historical experience on which they are based.

         The Bank's historical strategies in protecting both net interest income
and economic value of equity investments from significant movements in interest
rates have involved restructuring its investment portfolio and using FHLB
advances. Bank policies also permit the purchase of rate caps and floors, and
engaging in interest rate swaps, although the Bank has not yet engaged in either
of these activities. At September 30, 2003 the Bank had no derivative
instruments outstanding.

ITEM 4. CONTROLS AND PROCEDURES

(a)      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Our chief executive officer and chief financial officer directly
supervised and participated in evaluating the effectiveness of the design and
operation of our disclosure controls and procedures as of September 30, 2003 and
concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.

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


(b)      CHANGES IN INTERNAL CONTROLS

         There were no significant changes in the Bank's internal controls our
financial reporting during the quarter ended September 30, 2003 that could
significantly affect these internal controls subsequent to the Evaluation Date,
nor any significant deficiencies or material weaknesses in such controls
requiring corrective actions. As a result, no corrective actions were taken.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         From time to time, the Bank is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration
information furnished by the General Counsel as to the current status of these
claims or proceedings to which the Bank is a defendant, Management is of the
opinion that the ultimate aggregate liability represented thereby, if any, will
not have a material adverse effect on the financial condition of the Bank.

         The Bank has been subject to a Consent Order by the FDIC pursuant to
Section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(1) since April 14, 2002. The Consent Order addresses actions necessary
to correct certain Bank Secrecy Act ("BSA") compliance deficiencies including
inadequate training and internal controls, and ineffective independent testing
of such controls. Even before the Consent Order, the Bank had begun taking
proactive steps to improve its BSA compliance. For example, the Bank implemented
an enterprise-wide risk management infrastructure, which includes a
comprehensive compliance and training program. This step was taken with the
assistance of a leading financial services consulting firm, The Secura Group,
which the Bank retained in November 2001 to advise and assist the Bank in its
compliance efforts. To improve the overall efficiency and effectiveness of BSA
monitoring, the Bank implemented an automated BSA tracking/monitoring system. In
addition, the Bank is in the process of improving its due diligence efforts to
identify and monitor high-risk accounts, internal controls to assure the
accuracy and completeness of internal reports, and has intensified employee
training. Finally, the Audit Committee has engaged Deloitte & Touche to conduct
ongoing independent testing to validate the BSA monitoring controls, systems and
processes including the implementation of the BSA Tracking System and also to
oversee the bank-wide risk management. The Board of Directors, Management,
Officers, and employees of the Bank are fully committed to complying with all of
the terms of the Consent Order, and have been working and will continue to work
closely with the FDIC towards this goal.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable

ITEM 5. OTHER INFORMATION

         Korea Exchange Bank ("KEB"), which holds approximately 62% of the
Bank's outstanding shares, recently accepted a capital infusion from Lone Star
Fund IV (U.S.), L.P. and its affiliates (collectively, "Lone Star"), which
resulted in Lone Star holding a majority of the outstanding voting stock of KEB.
In connection with the infusion, KEB transferred all of the Bank shares that it
owns to a trust pursuant to a trust agreement dated October 31, 2003, which was
entered into between KEB, as grantor and Mr. L. Dale Crandall, as trustee. While
KEB retains all of the economic interest in the Bank shares transferred to the
trust, the trust agreement gives the trustee voting and dispositive power over



the Bank shares and directs the trustee to dispose of all or substantially all
of such interest either directly through a sale or in connection with a merger
or similar transaction of the Bank with a third party. The transfer of the
shares to the trustee does not affect the Bank's day-to-day business and
operations.

         The Board of Directors of the Bank has appointed a Special Committee
comprised of its independent, outside directors who are not affiliated with KEB
to evaluate any potential transaction that may involve the Bank. The Special
Committee will participate with the trustee in evaluating possible alternatives
and transactions. The Special Committee has engaged Friedman, Billings, Ramsey &
Co., Inc. as its financial advisor and Manatt, Phelps & Phillips, LLP as legal
counsel. There can be no assurance that any disposition by the trustee of the
Bank shares will involve a merger or similar transaction of the Bank.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (c)      Exhibit



 Exhibit Table
Reference Number                                    Item
- ----------------                                    ----
                    
      3.1              Articles of Incorporation, as Amended(1).......................

      3.2              2002 Amendment to Articles of Incorporation(2).................

      3.3              Bylaws, as Amended(1)..........................................

      3.4              2001 Amendment to Bylaws(3)....................................

      4.1              Specimen of Common Stock Certificate(1)........................

      10.1             2000 Stock Option Plan(1)......................................

      10.2             401(k) Plan(3).................................................

      10.3             Lease for Corporate Headquarters(1)............................

      10.4             Lease for Western Branch Office(1).............................

      10.5             Lease for Downtown Branch Office(1)............................

      10.6             Lease for Van Nuys Branch Office(1)............................

      10.7             Lease for Torrance Branch Office(1)............................

      10.8             Lease for Rowland Heights Branch Office(1).....................

      11.1             Statement Regarding Computation of Earnings Per Share(4).......

      31.1             Certification of Chief Executive Officer pursuant to Section 302 of
                       Sarbanes-Oxley Act of 2002.....................................

      31.2             Certification of Chief Financial Officer pursuant to Section 302 of
                       Sarbanes-Oxley Act of 2002.....................................

      32.1             Certification of Chief Financial Officer and Chief Financial Officer
                       Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.........


         (b)      Reports on Form 8-K

- -----------------
(1) Incorporated by reference to the Exhibits to the Bank's Form 10 Registration
    Statement, as filed with the FDIC on June 12, 2000.

(2) Incorporated by reference to the Exhibits to the Bank's Form 10K, as filed
    with the FDIC on April 1, 2003.

(3) Incorporated by reference to the Exhibits to the Bank's Form 10-K/A, as
    filed with the FDIC on April 20, 2001.

(4) The information required by this exhibit is incorporated herein by reference
    from Note of the Bank's Financial Statements included herein.



         On August 27, 2003, the Bank filed a report on Form 8-K with respect to
the issuance of a press release by Korea Exchange Bank, which holds
approximately 62% of the Bank's outstanding shares ("KEB"), with respect to an
agreement entered into between KEB and Lone Star under which Lone Star would
acquire 51% of the issued and outstanding shares of KEB from KEB and two of its
largest shareholders.

         On September 16, 2003, the Bank filed a report on Form 8-K with respect
to a special shareholders meeting of KEB at which KEB obtained shareholders
approval of the agreement between KEB and Lone Star.

         On November 3, 2003, the Bank filed a report on Form 8-K reporting that
Lone Star had acquired the majority of the shares of KEB.



                                   SIGNATURES

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

                             Pacific Union Bank

Date: November 13, 2003  By: /s/ Dianne Kim
                            ----------------------------------------------------
                                 Dianne Kim
                                 Senior Vice President and Chief Financial
                                 Officer
                                 (Principal financial or accounting officer and
                                 duly authorized signatory)

EX-99.5

                                                                    EXHIBIT 99.5

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

         Date of Report (Date of earliest event reported) April 8, 2002

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                         N/A               95-2888370
           ----------                         ---               ----------
  (State or other jurisdiction       (Commission file No.)      (I.R.S. Employee
of incorporation or organization)                            Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
               (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 5. OTHER EVENTS

The Board of Directors of Pacific Union Bank has become aware of recent foreign
and domestic Korean language press articles describing the intentions of its
majority stockholder, Korea Exchange Bank ("KEB"), concerning the Bank's
management. Although it is the general policy of the Bank not to respond to such
rumors or speculate on their accuracy, Mr. Allan E. Dalshaug, Chairman of the
Board, released the following statement to clarify the status of management at
Pacific Union Bank:

"The Board has engaged in ongoing discussions with KEB concerning various means
of building shareholder value. Management continuity and the localization of
operations are considered important factors in improving competitiveness and
have been part of the Bank's strategic goals since its IPO in 2000. As part of
the Bank's ongoing efforts to achieve these goals, the Board and KEB have
concluded that it would be desirable for the Bank to retain a President & CEO
experienced in American community banking. Accordingly, KEB will no longer
recommend its retired executives to serve as president of the Bank.

"To implement this change, the Board has formed a Committee to determine a
comprehensive selection process and initiate a competitive search for a
qualified candidate with extensive experience in American community banking.
Although the outcome cannot be guaranteed, the Board hopes to locate a highly
qualified individual who will serve as President & CEO for an extended period of
time, subject to satisfactory performance reviews, and who will be held
accountable for the ongoing success of the Bank as well as implementing the
Board's strategic initiatives.

"Further," Mr. Dalshaug stated, "as the Bank's majority shareholder, KEB has
indicated, it intends to continue its practice of recommending and voting for
KEB senior executives and KEB retirees to serve as directors of the Bank. KEB
indicated it will recommend one of its nominated directors to serve as the
Chairman of the Board. The current Board has agreed that such director will be
nominated to serve as Chairman following the annual meeting of shareholders."

Pacific Union Bank is a California state-chartered commercial bank headquartered
in Los Angeles, California, which commenced operations in September 1974. The
Bank's primary market includes the greater Los Angeles metropolitan area, Orange
County, Santa Clara County and the San Francisco metropolitan area. Through its
network of 12 full-service branch offices, and a loan production office in
Seattle, Washington, the Bank provides a wide range of commercial and consumer
banking services to the Korean-American communities. The Bank's primary focus is
on its core customer base of small and medium-sized Korean-American businesses,
professionals and other individuals. The Bank places a particular emphasis on
the growth of its low cost core-deposit base and the origination of commercial
and residential real estate loans. For additional information, visit the web
site for Pacific Union Bank located at www.pacificunionbank.com.

This release contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"believe," "estimate," "expect", "intend," anticipate" and similar expressions
and variations thereof identify certain of such forward-looking statements,
which speak only as of the dates, which they were made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those indicated in the forward-looking statements as a
result of various factors. Readers are cautioned not to place undue reliance on
these forward-looking statements.



                                    SIGNATURE

         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.

                                         Pacific Union Bank

Dated: April 9, 2003                     By: /s/ Dianne Kim
                                             --------------
                                             Dianne Kim, Senior Vice President
                                               and Chief Financial Officer

EX-99.6

                                                                    EXHIBIT 99.6

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

         Date of Report (Date of earliest event reported) April 21, 2003

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                        N/A                 95-2888370
           ----------                        ---                 ----------
  (State or other jurisdiction      (Commission file No.)     (I.R.S. Employee
of incorporation or organization)                            Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
               (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 5. OTHER EVENTS

Mr. Woon Seok Hyun has announced his intention to resign as the Bank's Chief
Executive Officer, President, and Director. His resignation will be effective as
of May 22, 2003. Mr. Hyun has served as the Bank's CEO since May 2001.

Under Mr. Hyun's leadership, total assets grew to $1.0 billion at April 10, 2003
from $805.8 million at March 31, 2001. Total loans increased to $733.8 million
at April 10, 2003 from $498.2 million at March 31, 2001. Asset quality remained
strong during this period, despite a very difficult economic environment. He
focused on increasing low cost deposits and improved the deposit mix at the
Bank.

During this period, the Bank was included in the Russell 3000 index for the
first time, and was selected as a Top 25 Los Angeles County-Based Bank. Mr. Hyun
also implemented an ongoing strategic planning process. The Board expresses its
appreciation for Mr. Hyun's service and accomplishments.

As previously reported, the Board had formed a CEO Search Committee as part of
an effort to "localize" the CEO position. The Search Committee is actively
seeking potential qualified candidates. In light of Mr. Hyun's resignation, the
Board has selected an independent Director, Mr. David Warner, to serve as an
Interim CEO, subject to FDIC non-disapproval, from the effective date of Mr.
Hyun's resignation until a permanent CEO is appointed.

Mr. Warner has in excess of eight years of experience in the banking community
in Seoul, Korea. He was selected as Deputy President and Chief Financial Officer
of Seoul Bank in Seoul, Korea as part of its reorganization team. He also served
as Advisor/Director of the Korea Development Bank and was Country Manager for
the First National Bank of Chicago.

Mr. Warner has extensive experience in the Financial Services Industry as well.
He has approximately 30 years of experience including leadership positions with
the First National Bank of Chicago in the United States, Hong Kong, Korea, and
other Asian countries. He also spent a number of years in Hong Kong with
ChinaVest Limited, managing investments in their venture capital portfolio and
evaluating investment opportunities.

Pacific Union Bank has benefited from Mr. Warner's varied experience and
financial expertise since May 2002, when he joined the Bank as an independent
Director. As a Director, he has actively participated in setting the Bank's
strategic direction and initiatives and has been an instrumental member of the
Audit Committee. Given his unique background, the Board believes that Mr. Warner
will make a significant contribution to the Bank in his tenure as Interim CEO.

Pacific Union Bank is a California state-chartered commercial bank headquartered
in Los Angeles, California, which commenced operations in September 1974. The
Bank's primary market includes the greater Los Angeles metropolitan area, Orange
County, Santa Clara County and the San Francisco metropolitan area. Through its
network of 12 full-service branch offices, and a loan production office in
Seattle, Washington, the Bank provides a wide range of commercial and consumer
banking services to the Korean-American communities. The Bank's primary focus is
on its core customer base of small and medium-sized Korean-American businesses,
professionals and other individuals. The Bank places a particular emphasis on
the growth of its low cost core-deposit base and the origination of commercial
and residential real estate loans. For additional information, visit the web
site for Pacific Union Bank located at www.pacificunionbank.com.

This release contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"believe," "estimate," "expect", "intend," anticipate" and similar expressions
and variations thereof identify certain of such forward-looking statements,
which speak only as of the dates, which they were made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. Readers are
cautioned not to place undue reliance on these forward-looking statements.



ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

         (c)      EXHIBITS

                  99.1     Press release concerning earnings for March 31, 2003
                           calendar quarter

ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         On April 21, 2003 the Bank issued an earnings release concerning its
results of operations and financial condition as of and for the calendar quarter
ended March 31, 2003. A copy of the release is attached as Exhibit 99.1.



                                  EXHIBIT INDEX



Exhibit No.                            Description                          Page
- -----------                            -----------                          ----
                                                                      
    99.1     Press release concerning earnings for March 31, 2003 calendar
             quarter.




                                    SIGNATURE

         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.

                                       Pacific Union Bank

Dated: April 22, 2003                  By: /s/ Dianne Kim
                                           --------------
                                           Dianne Kim, Senior Vice President
                                             and Chief Financial Officer

EX-99.7

                                                                    EXHIBIT 99.7

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

         Date of Report (Date of earliest event reported) July 23, 2003

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

          CALIFORNIA                         N/A                95-2888370
          ----------                         ---                ----------
  (State or other jurisdiction      (Commission file No.)     (I.R.S. Employee
of incorporation or organization)                            Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
               (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.

At its Audit Committee meeting on July 21, 2003, the Audit Committee of Pacific
Union Bank ("the Bank"), Los Angeles, California, selected the accounting firm
of KPMG, LLP ("KPMG"), as independent auditors for the Bank's 2003 fiscal year.
At the same meeting the Audit Committee dismissed PricewaterhouseCoopers LLP
("PWC") as independent auditors for the Bank.

PWC audited the financial statements for the Bank for the year ended December
31, 2002. The reports of PWC on the financial statements for the past year
contained no adverse opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principle.

During the fiscal year ended December 31, 2002 and the subsequent interim period
January 1, 2003 through July 21, 2003, there were no disagreements between PWC
and the Bank on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of PWC, would have caused it to make reference to
the subject matter of the disagreements in connection with its report on the
financial statements.

KPMG had served the Bank as its independent auditors and audited the financial
statements since the inception of the Bank through the fiscal year ended
December 31, 2001.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

         (d)      EXHIBITS

                  16       Letter from PWC, LLP

                  99.1     Press release concerning earnings for June 30, 2003
                           calendar quarter

ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         On July 23, 2003 the Bank issued an earnings release concerning its
results of operations and financial condition as of and for the calendar quarter
ended June 30, 2003. A copy of the release is attached as Exhibit 99.1.



                                  EXHIBIT INDEX



Exhibit No.                             Description                         Page
- -----------                             -----------                         ----
                                                                      
     16       Letter from PWC, LLP

    99.1      Press release concerning earnings for June 30, 2003 calendar    3
              quarter.




                                    SIGNATURE

         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.

                                          Pacific Union Bank

Dated: July 25, 2003                      By: /s/ Dianne Kim
                                              ---------------
                                               Dianne Kim, Senior Vice President
                                                 and Chief Financial Officer

EX-99.8

                                                                    EXHIBIT 99.8

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        Date of Report (Date of earliest event reported) August 27, 2003

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                        N/A                 95-2888370
           ----------                        ---                 ----------
(State or other jurisdiction         (Commission file No.)     (I.R.S. Employee
  of incorporation or organization)                          Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
              (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 5. OTHER EVENTS

On August 27, 2003, Korea Exchange Bank, which holds approximately 62% of the
registrant's outstanding shares, issued a press release that it entered into an
agreement with Lone Star under which Lone Star has agreed to inject additional
capital for new shares of KEB stock and to contemporaneously purchase preferred
shares of KEB stock from two of its shareholders, The Export-Import Bank of
Korea and Commerzbank, which would make Lone Star the largest shareholder of KEB
holding 51% of the total issued and outstanding shares of KEB. KEB will hold a
shareholders meeting on September 16, 2003. A copy of the release is attached as
Exhibit 99.1.



                                    SIGNATURE

         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.

                                         Pacific Union Bank

Dated: August 28, 2003                   By: /s/ Dianne Kim
                                             --------------
                                              Dianne Kim, Senior Vice President
                                                 and Chief Financial Officer

EX-99.9

                                                                    EXHIBIT 99.9

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported) September 19, 2003


                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                         N/A                95-2888370
           ----------                         ---                ----------
(State or other jurisdiction         (Commission file No.)    (I.R.S. Employee
  of incorporation or organization)                         Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
              (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 5. OTHER EVENTS

The Bank has learned that on September 16, 2003 (Korea Time) Korea Exchange
Bank, which holds approximately 62% of the registrant's outstanding shares, held
a special shareholders meeting and obtained shareholder approval of its proposed
agreement with Lone Star. Under the agreement, Lone Star would inject additional
capital for new shares of KEB stock and contemporaneously purchase preferred
shares from two of its current shareholders, which would make Lone Star the
largest shareholder holding 51% of the total outstanding shares of KEB. The KEB
shareholders also elected a new slate of ten directors. A copy of the release is
attached as Exhibit 99.1.



                                    SIGNATURE

         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.

                                         Pacific Union Bank

Dated: September 19, 2003                By: /s/ Dianne Kim
                                             --------------
                                              Dianne Kim, Senior Vice President
                                                 and Chief Financial Officer

EX-99.10

                                                                   EXHIBIT 99.10

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20006

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        Date of Report (Date of earliest event reported) December 9, 2003

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

           CALIFORNIA                         N/A                95-2888370
           ----------                         ---                ----------
(State or other jurisdiction         (Commission file No.)    (I.R.S. Employee
  of incorporation or organization)                          Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
               (Registrant's telephone number including area code)

  (Former name or former address, if changed since last report) Not applicable



ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE

As previously reported, on October 31, 2003, Korea Exchange Bank ("KEB")
transferred (the "Transfer") 6,624,052 shares of common stock (the "Shares") of
Registrant, representing 62.1% of the Registrant's issued and outstanding common
stock at that time, to a trust (the "Trust"). The Trust was created pursuant to
a Trust Agreement, dated as of October 31, 2003 (the "Trust Agreement"), by and
between KEB, as grantor, and L. Dale Crandall, as trustee (the "Trustee"). No
consideration was paid by the Trustee or the Trust for the Shares in connection
with the Transfer, and KEB, as sole beneficiary under the Trust, retains the
economic benefit of the Shares. Pursuant to the Trust Agreement, the Trustee has
the sole power to vote or to direct the vote and to dispose or to direct the
disposition of the Shares. The Trustee, on behalf of the Trust, filed a Schedule
13D with the FDIC on November 10, 2003, in connection with the transactions
contemplated by the Transfer.

On December 9, 2003, the Trustee filed Amendment No. 1 to his Schedule 13D,
disclosing that in discussions with the special committee of the board of
directors of the Registrant, the Trustee orally indicated that he will not
pursue a transaction that excludes the minority shareholders of the Registrant
if a financially viable alternative transaction is available that includes all
shareholders of the Registrant. There can be no assurance that any disposition
of the Shares will involve a merger or other transaction that includes all
shareholders of the Registrant.



                                    SIGNATURE

         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.

                                         Pacific Union Bank

Dated: December 10, 2003                 By: /s/ Dianne Kim
                                             --------------
                                              Dianne Kim, Senior Vice President
                                                and Chief Financial Officer

EX-99.11

                                                                   EXHIBIT 99.11

                      FEDERAL DEPOSIT INSURANCE CORPORATION

                             WASHINGTON, D.C. 20429

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported) December 22, 2003

                               PACIFIC UNION BANK
                               ------------------
             (Exact name of registrant as specified in its charter)

            CALIFORNIA                      21765                95-2888370
            ----------                      -----                ----------
   (State or other jurisdiction     (FDIC Certificate No.)    (I.R.S. Employee
 of incorporation or organization)                           Identification No.)

            3530 WILSHIRE BLVD., #1800, LOS ANGELES, CALIFORNIA 90010
            ---------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip code)

                                 (213) 385-0909
                                 --------------
              (Registrant's telephone number including area code)

                                 Not applicable
                                 --------------
          (Former name or former address, if changed since last report)



ITEM 5. OTHER EVENTS

On December 22, 2003, Pacific Union Bank, a California banking corporation
("PUB"), Hanmi Financial Corporation, a Delaware corporation ("Hanmi"), and
Hanmi Bank, a California banking corporation and wholly owned subsidiary of
Hanmi ("Hanmi Bank"), entered into an Agreement and Plan of Merger, dated as of
December 22, 2003 (the "Merger Agreement"), pursuant to which PUB will merge
with and into Hanmi Bank, with Hanmi Bank surviving the merger.

In connection with the Merger Agreement, Hanmi and the trust (the "Trust") that
holds the 6,624,052 shares of PUB common stock formerly held by Korea Exchange
Bank ("KEB"), have entered into a Voting and Sale Agreement dated as of December
22, 2003, pursuant to which the Trust has agreed to vote its shares of PUB
common stock in favor of the merger and the Merger Agreement, and to sell a
majority of those shares to Hanmi for cash concurrently with the closing of the
merger.

Concurrently with the execution of these agreements, Hanmi entered into
securities purchase agreements with several investors pursuant to which these
investors have agreed to buy, and Hanmi has agreed to issue and sell,
concurrently with the closing of the merger, an aggregate of 3,947,369 shares of
Hanmi's common stock for $19 per share in cash. These investors include five
members of Hanmi's board of directors, who have collectively agreed to purchase
430,326 shares of Hanmi's common stock for $8,176,194. Hanmi also entered into
an agreement with Trapeza Funding V, LLC ("Trapeza") whereby Trapeza has
committed to purchase trust preferred securities issued by Hanmi in an amount of
up to $60 million. Hanmi expects to issue half of these trust preferred
securities in January, with the balance issued concurrently with the closing of
the merger.

In connection with the Merger Agreement, all members of Hanmi's board of
directors holding shares of Hanmi's common stock, and collectively holding a
total of approximately 32% of the outstanding shares of Hanmi's common stock,
entered into voting agreements with PUB pursuant to which these directors agreed
to vote all of their shares of Hanmi common stock in favor of the issuance of
Hanmi common stock pursuant to the merger and the financing transactions related
thereto.

A joint press release announcing the execution of the Merger Agreement and the
related agreements was issued on December 22, 2003. The information in the press
release is incorporated herein by reference. A copy of the joint press release
is attached hereto as Exhibit 99.1.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

         (a)      Financial Statements of Business Acquired:

                  None

         (b)      Pro Forma Financial Information:

                  None

         (c)      Exhibits:

                  The following exhibits are furnished in accordance with Item
601 of Regulation S-K.

EXHIBIT NO.        DESCRIPTION
- ----------         -----------

2.1                Agreement and Plan of Merger, dated as of December 22, 2003,
                   by and among Pacific Union Bank, Hanmi Financial Corporation
                   and Hanmi Bank.

2.2                Voting and Sale Agreement, dated as of December 22, 2003, by
                   and between Hanmi Financial Corporation and the Trust
                   established pursuant to the Trust Agreement dated as of
                   October 31, 2003 between Korea Exchange Bank and Mr. L. Dale
                   Crandall.

99.1               Joint Press Release dated December 22, 2003.



                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned thereunto duly authorized.

                                       Pacific Union Bank
                                       (REGISTRANT)

Dated: December 22, 2003               By: /s/ David B. Warner
                                           -------------------
                                           David B. Warner, President and
                                           Chief Executive Officer



                                INDEX TO EXHIBITS

EXHIBIT NO.        DESCRIPTION
- -----------        -----------

2.1                Agreement and Plan of Merger, dated as of December 22, 2003,
                   by and among Pacific Union Bank, Hanmi Financial Corporation
                   and Hanmi Bank.

2.2                Voting and Sale Agreement, dated as of December 22, 2003, by
                   and between Hanmi Financial Corporation and the Trust
                   established pursuant to the Trust Agreement dated as of
                   October 31, 2003 between Korea Exchange Bank and Mr. L. Dale
                   Crandall.

99.1               Joint Press Release dated December 22, 2003.

EX-99.12

                                                                   EXHIBIT 99.12

         THE FOLLOWING IS A DESCRIPTION OF PACIFIC UNION BANK'S CAPITAL STOCK
         TAKEN FROM PACIFIC UNION BANK'S FORM 10 FILED PURSUANT TO THE
         SECURITIES EXCHANGE ACT OF 1934.

ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED

         The authorized capital stock of the Bank consists of 30,000,000 shares
of Common Stock, par value $6.00 per share. As of June 2, 2000, there were
issued and outstanding 6,666,667 shares of the Bank's Common Stock. A summary of
the rights, preferences, privileges and restrictions of the Bank's Common Stock
is set forth below.

DIVIDENDS

         The Bank can pay dividends as and when declared by the Board of
Directors, subject to compliance with limitations imposed by law. Each share of
Common Stock has the right to participate equally in dividends declared by the
Board of Directors out of funds legally available therefor. The Board of
Directors does not anticipate paying cash dividends for the foreseeable future.
See "Item 9 -- Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters -- Dividends" herein.

VOTING RIGHTS

         All voting rights are vested in the holders of the Common Stock. Each
holder of Common Stock is entitled to one vote for each share of Common Stock
standing in his name on the books of the Bank on any matter submitted to the
vote of the shareholders, except that in connection with the election of
directors, shares are entitled to be voted cumulatively if a candidate's name
has been placed properly in nomination prior to the voting and a shareholder
present at the meeting gives notice of his or her intention to vote
cumulatively. Cumulative voting entitles a shareholder to give one nominee as
many votes as is equal to the number of directors to be elected multiplied by
the number of shares owned by such shareholder, or to distribute his or her
votes on the same principle between or among two or more nominees as he or she
deems appropriate. The candidates receiving the highest number of votes, up to
the number of directors to be elected, will be elected under cumulative voting.
KEB has entered into a voting agreement with the Bank specifying that KEB agrees
to not vote its shares at the Bank's 2001 Annual Meeting of Shareholders for
more than four nominees for director who would not be outside directors. The
voting agreement does not limit KEB from voting its shares for any nominees who
would be outside directors.

LIQUIDATION

         In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the corporation, after distribution in full of the preferential
amounts to be distributed to the holders of all classes and series of stock
entitled thereto and to the holders of capital notes, if any, as provided for in
the California Financial Code, the holders of the Common Stock shall be entitled
to receive all the remaining assets of the corporation.

ABSENCE OF PREEMPTIVE RIGHTS

         Holders of the Common Stock of the Bank do not have preemptive rights
to subscribe for additional shares on a pro rata basis when and if such
additional shares are offered for sale by the Bank.

MISCELLANEOUS

         Each share of Common Stock has the same rights, preferences, and
privileges as every other share, and is entitled to one vote at any meeting of
shareholders (except as described above). The Common Stock has no conversion or
redemption rights or sinking fund provisions applicable thereto. All of the
shares of Common Stock outstanding are fully paid and non-assessable.

         California law prohibits a California state-chartered bank from lending
on the security of, or for the purpose of purchasing, its own stock and from
purchasing shares of its own stock unless approved in advance by the
Commissioner or unless such purchase in necessary to prevent loss to the bank on
debts previously contracted in good faith.

         The Bank utilizes U. S. Stock Transfer Corp., Glendale, California, as
its transfer agent.