10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2003
or

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

For the transition period from ____________ to ______________

Commission File # 000-50245

NARA BANCORP, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization) 95-4849715
(I.R.S. Employer
Identification Number)

3701 Wilshire Boulevard
Suite 220
Los Angeles, California 90010
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (213) 639-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)

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

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

The aggregate market value of the Common Stock held by non-affiliates of the Registrant based upon the closing sale price of the Common Stock on June 30, 2003, as reported on the Nasdaq National Market, was approximately $202,103,930.

Number of shares outstanding of the Registrant’s Common Stock, as of March 11, 2004: 11,580,089

Portions of the Definitive Proxy Statement that will be filed in connection with the registrant’s Annual Meeting of Stockholders to be held on May 13, 2004 are incorporated by reference into Part III of this Form 10-K.

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Table of Contents

	Page
PART I
Forward-Looking Information
Item 1. Business		4
General		4
Recent Developments		5
Business Overview		5
Lending Activities		6
Investing Activities		8
Deposit Activities		8
Borrowing Activities		8
Market area and Competition		8
Economic Conditions, Government Policies and Legislation		9
Supervision and Regulation		10
Employees		19
Factors That May Impact Our Business or the Value of Our Stock		19
Accounting Matters		22
Item 2. Properties		23
Item 3. Legal Proceedings		24
Item 4. Submission of Matters to a Vote of Security Holders		24
Item 4(a) Executive Officers of the Registrant		24
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters		26
Item 6. Selected Financial Data		27
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations		29
Item 7A. Quantitative and Qualitative Disclosures of Market Risks		52
Item 8. Financial Statements and Supplementary Data		55
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Item 9A Controls and Procedures		55
PART III
Item 10. Directors and Executive Officers of the Registrant		56
Item 11. Executive Compensation		56
Item 12. Security Ownership of Certain Beneficial Owners and Management		56
Item 13. Certain Relationships and Related Transactions		56
Item 14. Principal Accounting Fees and Services		56
PART IV
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K		57
EXHIBIT 10.20
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I

Forward-Looking Information

     Certain matters discussed in this Annual Report on Form 10-K may constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the word “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in such forward-looking statements. For a detailed discussion of the factors that might cause such a difference, see Item 1. “ Factors That May Impact Our Business or the Value of Our Stock.”

     Factors that might affect forward-looking statements include, among other things:

• the demand for our products;

• actions taken by ours competitors;

• changes in the FDIC insurance premium;

• tax rate changes, new tax laws and revised tax law interpretations;

• adverse changes occurring in the securities markets;

• inflation and changes in prevailing interest rates that reduce our margins or the fair market value of the financial instruments that we hold;

• economic or business conditions, either nationally or in our market areas, that are worse than we anticipated;

• legislative or regulatory changes that adversely affect our business;

• the timing, impact and other uncertainties of our asset sales or securitizations;

• technology changes that are more difficult or expensive than we expect;

• increases in delinquencies and defaults by our borrowers and other loan delinquencies;

• increases to our provision for losses on loans and leases due to loan quality/performance deterioration;

• our inability to sustain or improve the performance of our subsidiaries;

• our inability to achieve our financial goals and strategic plans, including any financial goals related both to contemplated and consummated assets sales or acquisitions;

• the outcome of lawsuits or regulatory disputes; and

• credit and other risks of lending, leasing and investment activities.

     As a result of the above, we cannot assure you that our future results of operations or financial conditions or any other matters will be consistent with those presented in any forward-looking statements. Accordingly, we caution you not to rely on these forward-looking statements. We do not undertake, and specifically disclaim any obligation, to update these forward-looking statements, which speak only as of the date made.

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Item 1. BUSINESS

General

     Nara Bancorp, Inc. and subsidiaries (“Nara Bancorp,” on a parent-only basis, and “we” or “our” on a consolidated basis) is a bank holding company headquartered in Los Angeles, California. We offer a full range of commercial banking and consumer financial services through our wholly owned subsidiary, Nara Bank, N.A., a national bank (the “Bank” or “Nara Bank”). During the first quarter of 2001, Nara Bancorp became a bank holding company regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) as part of the reorganization of Nara Bank into a holding company structure. Nara Bank was organized in 1989 and Nara Bancorp was incorporated under the laws of the State of Delaware in 2000. Nara Bancorp’s principal business is to serve as a holding company for Nara Bank and other bank-related subsidiaries, which Nara Bancorp may establish or acquire. Our headquarters are located at 3701 Wilshire Boulevard, Suite 220, Los Angeles, California 90010, and our telephone number at that address is (213) 639-1700. Nara Bank’s deposits are insured by the Bank Insurance Fund (“BIF”), as administered by the Federal Deposit Insurance Corporation (“FDIC”), up to applicable limits. Nara Bank is a member of the Federal Reserve System.

     Nara Bancorp currently has five special-purpose subsidiaries that were formed for capital-raising transactions; Nara Capital Trust I, Nara Statutory Trust II, Nara Capital Trust III, Nara Statutory Trust IV, and Nara Statutory Trust V. In March 2000 and 2001, Nara Bancorp established Nara Capital Trust I (“Trust I”) and Nara Statutory Trust II (Trust II”), respectively. The Trust I and Trust II are statutory business trusts. The Trust I issued $10.0 million in trust preferred securities bearing a fixed rate of 10.18%. The interest is payable semi-annually for a 30 year term. Trust II issued $8.0 million in trust preferred securities. In both issuances, we participated as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 26, June 26, September 26 and December 26 during its 30-year term based on the 3-month LIBOR plus 3.60 % and is paid quarterly. In June 2003, Nara Bancorp established Nara Capital Trust III (“Trust III”), and in December of 2003 Nara Bancorp established Nara Statutory Trust IV (“Trust IV”) and Nara Statutory Trust V (“Trust V”), respectively. In three separate private placement transactions, the Trusts issued $5.0 million, $5.0 million and $10.0 million with quarterly adjustable rates based on the 3-month LIBLOR plus 3.15%, 2.85 %, and 2.95%, respectively, and interests are payable semi-annually for a 30 year term. The statutory business trusts were established as part of our capital planning to compliment our support future growth.

     With the adoption of FIN No. 46, Bancorp deconsolidated the five grantor trusts as of December 31, 2003. As a result, the junior subordinated debentures issued by Bancorp to the grantor trusts, totaling $39.3 million, are reflected in our consolidated balance sheet in the liabilities section at December 31, 2003, under the caption as “junior subordinated debentures.” We record interest expense on the corresponding junior subordinated debentures in the consolidated statements of income. The Company also recorded $2.0 million in other assets in the consolidated statement of financial condition at December 31, 2003 for the common capital securities issued by the issuer trusts.

     Nara Bank, opened for business on June 16, 1989 under the name “United Citizens National Bank’ as a national banking association. The institution’s name was changed to “Nara Bank, National Association” on January 27, 1994. Nara Bank is headquartered at 3701 Wilshire Boulevard, Suite 220, Los Angeles, California 90010. Nara Bank primarily focuses its business in Korean communities in California and in the greater New York City metropolitan area.

     On October 13, 1998, the Bank purchased the Flushing branch of Korea Exchange Bank in New York. The Bank acquired approximately $10.0 million in net loans and assumed approximately $21.0 million in deposits.

     On February 28, 2000, the Bank acquired Korea First Bank of New York for a purchase price of approximately $8.7 million. Korea First Bank of New York had three branches in New York area: one in Manhattan, one in Jackson Heights, and one in Flushing. The Bank acquired approximately $30.5 million in net loans and assumed approximately $67.8 million in deposits.

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     On November 29, 2002, the Bank purchased certain loans and deposits from the Industrial Bank of New York. Assumed deposits totaled approximately $49.6 million and the loans purchased totaled approximately $1.3 million.

     On August 25, 2003, the Bank purchased Asiana Bank at a price of $8.0 million in Nara Bancorp stock. Nara Bancorp issued approximately 426,000 shares for this acquisition. Asiana Bank had two branches in Northern California: one branch in Silicon Valley and one branch in Oakland. Both branches have been closed and consolidated into the Bank’s existing branch in both locations. The Bank acquired approximately $22.4 million in net loans and assumed approximately $29.3 million in deposits

     On October 30, 2003, the Bank purchased certain loans and deposits from Korea Exchange Bank, Broadway branch in New York. Assumed deposits totaled approximately $46.2 million and the loans purchased totaled approximately $39.5 million.

     At December 31, 2003, the Bank had two wholly owned subsidiaries. The first subsidiary, Nara Loan Center, is a New Jersey corporation organized in 2000. It is a loan production office, generating mostly SBA loans. The second subsidiary, Nara Real Estate Trust, a Maryland real estate investment trust, was formed in April of 2003. As of December 31, 2003, Nara Real Estate Trust had total assets of $120.0 million.

     Our website address is www.narabank.com. Electronic copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, are available free of charge by visiting our website at www.narabank.com/financial.asp. These reports are generally posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission.

Recent Developments

     On March 11, 2004, Nara Bancorp declared a dividend of $0.05 per common share for the first quarter of 2004, which is payable on April 12, 2004 to stockholders of record on March 31, 2004.

     On March 9, 2004, Nara Bank signed a Purchase and Assumption Agreement with Interchange Bank, a New Jersey chartered bank, for the purchase of the Hackensack branch of Interchange. Upon closing of this transaction, Nara Bank will assume approximately $1.5 million in deposits, and no loans. The purchase will allow Nara Bank to expand its branch network to the New Jersey market and meet the demands of the growing Korean-American community in New Jersey. The transaction is expected to close during the second quarter of 2004 and is subject to normal closing conditions.

Business Overview

     Our principal business activities are conducted through Nara Bank by earning interest on loans and investment securities that are funded by customer deposits and other borrowings. The difference between interest received and interest paid comprises the majority of our operating earnings. The FDIC insures Nara Bank’s deposits up to the maximum legal limits, and the Bank is a member of the Federal Reserve System.

     Through our network of 15 branches and 5 loan production offices, we offer a full range of commercial banking and consumer financial services for our customers, who typically are individuals and small- to medium-sized businesses in our market areas. We accept deposits and originate a variety of loans including commercial loans, commercial real estate loans, trade finance, Small Business Administration (SBA) loans, automobile and various consumer loans. To better meet our customers’ needs, our mini-market branches generally offer extended

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hours from 9 a.m. to 6 p.m. Each of our branches, except for our Downtown Los Angeles branch, operates 24-hour automated teller machines. We provide courier services to qualifying customers and have personal banking officers for our key customers to better support their banking needs. We honor merchant drafts for both VISA and MasterCard and provide debit card services to our customers. In addition, most of our branches offer travelers’ checks, safe deposit boxes, notary public and other customary bank services. We also offer 24-hour banking by telephone. Our website at www.narabank.com features both English and Korean applications and internet banking services.

     A significant amount of our operating income and net income depends on the difference between interest revenue received from interest-earning assets and interest expense paid on interest-bearing liabilities. However, interest rates are highly sensitive to many factors that are beyond our control, such as general economic conditions and the policies of various governmental and regulatory authorities, in particular those of the Federal Reserve Board. Although our business may vary with local and national economic conditions, such variations are not seasonal in nature.

Lending Activities

     Commercial Loans

     Commercial loans are extended to businesses for various purposes such as providing working capital, purchasing inventory, purchasing machinery and equipment, debt refinance, business acquisition and other business related financing needs. Commercial loans are typically classified as (1) Short-term loans (or lines of credits), which are often used to finance currents assets such as inventories and accounts receivable, which have terms of one year with interest paid monthly on the outstanding balance and principal balance due at maturity and (2) Long-term loans (or term loans to businesses) have terms of 5 to 7 years with principal and interest paid monthly. The credit-worthiness of our borrowers is determined before the loan is originated and periodically reviewed to ascertain credit quality for both short-term and long-term loans. Commercial loans are typically collateralized by the borrower’s business assets and/or real estate. Recently, the Bank began making commercial loans in the U.S. that are secured by real estate located in South Korea. This program is being offered in conjunction with Hana Bank, South Korea’s third largest commercial bank. We do not expect the loans made on South Korean Real Estate Collateral loans to make up significant portion of our loan portfolio. We also offer small business loans to smaller retail businesses up to $100,000 with terms of 3 to 5 years at a fixed interest rate.

     Our commercial loan portfolio includes trade finance loans from the Bank’s International Department, which generally serves businesses involved in international trade activities. These loans are typically collateralized by business assets and are used to meet the short-term working capital needs (accounts receivable and inventories) of the subject business. The department also issues and advises and letters of credit for export and import businesses

     Commercial Real Estate Loans

     Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust. The maturities on such loans are generally restricted to seven years with a balloon payment due at maturity and are amortized for up to 25 years. We offer both fixed and floating rate loans. It is our policy to restrict real estate loans to 70% of Nara Bank’s appraised value of the subject property.

     Small Business Administration Loans

     Small Business Administration (SBA) 7(a) loans are typically extended for the purpose of providing working capital, purchase of inventory, purchase of machinery and equipment, debt refinance, business acquisition, start-up financing, or to purchase/construct owner-occupied commercial property. SBA 7(a) loans typically are term loans with maturities ranging from 7 to 10 years for business only related loans and are 25 years for real estate related loans. SBA loans are fully amortized with payment of principal and interest monthly. SBA loans normally provide for floating interest rates and are secured by business assets and/or real estate. Each loan is typically guaranteed 75% to 85% by the U.S. Small Business Administration depending on the loan amount, with a maximum loan amount per borrower of $750,000.

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     The SBA 7(a) loans we generate represent an important segment of our non-interest income because of our ability to sell the guaranteed portion in the secondary market at a premium while earning servicing fee income on the sold portion over the remaining life of the loan. Thus, in addition to the interest yield earned on the un-guaranteed portion of the SBA loans that we retained, we recognize income from the gains on the sales and from loan servicing on the SBA loans sold in the secondary market.

     SBA 504 loans are typically extended for the purpose of purchasing owner-occupied commercial real estate or long-term capital equipment. SBA 504 loans are typically extended for 20 years or the life of the asset being financed. SBA 504 loans are financed as participation between the Bank and the U.S. SBA through a Certified Development Company “CDC”. Generally, the loans are structured as 50% Bank first deed of trust (“T/D”), 40% second T/D (SBA), and 10% injection by borrower. Rates for the first T/D Bank loans are subject to normal bank commercial rate and the second T/D SBA loans are fixed for the life of the loans with the U.S. Treasury rate used as its index.

     All our SBA loans are handled through Nara Bank’s SBA Loan department. The SBA loan department is staffed by loan officers who provide assistance to qualified businesses. For SBA 7a loans, we attained our initial SBA Preferred Lender status in the Los Angeles and Santa Ana districts on January 16, 1997. SBA Preferred Lender status is the highest designation awarded by the U.S. Small Business Administration and generally facilitates the marketing and approval process for SBA loans. We have since attained SBA Preferred Lender statuses in San Francisco, Seattle, Spokane, Illinois, Atlanta, New York, New Jersey, Virginia, Baltimore, Washington D.C. and Denver.

     Consumer Loans

     Consumer loans are extended for automobile and home equity loans with a majority of the consumer loan portfolio currently consisting of automobile loans. Referrals from automobile dealers comprise the majority of originations for automobile loans. We offer fixed rate loans to buyers who are not qualified for automobile dealers’ most preferential loan rates for new and used car financing. We offer home equity loans and lines up to 89% of the appraisal value. Recently, the Bank has started to accept South Korean real estate as security on a select few loans.

     Concentrations

     Loan concentrations are considered to exist when there are significant amounts of loans to a multiple number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. The following table describes the industry concentrations in our loan portfolio over the past five years, which exceeded 10% of our total loans as of the dates indicated:

	At December 31,
(dollars in thousands)	2003					2002					2001					2000					1999
			% of					% of					% of					% of					% of
	Amount		Portfolio			Amount		Portfolio			Amount		Portfolio			Amount		Portfolio			Amount		Portfolio
Manufacturing	$	73,675		7.4	%	$	48,245		6.6	%	$	38,665		7.6	%	$	36,142		10.0	%	$	30,072		12.6	%
Wholesale Trade		174,195		17.4	%		127,659		17.5	%		109,112		21.4	%		89,609		24.7	%		71,283		29.8	%
Retail Trade		158,821		15.9	%		126,988		17.4	%		85,515		16.8	%		61,282		16.9	%		35,878		15.0	%
Services		198,940		19.9	%		138,203		18.9	%		104,669		20.6	%		63,792		17.6	%		25,702		10.8	%
Finance, Insurance, Property Management		355,557		35.5	%		248,417		34.0	%		129,495		25.4	%		75,567		20.8	%		48,453		20.3	%
Total		961,188					689,512					467,456					326,392					211,388
Gross Loans, net of unearned *	$	1,001,265				$	729,815				$	508,850				$	362,704				$	238,931

* Includes loans held for sale: $3,926,885 in 2003, $6,337,519 in 2002, $3,657,842 in 2001, and $168,250 in 1999

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Investing Activities

     The main objectives of our investment strategy are to support a sufficient level of liquidity while providing a means to manage our interest rate risk, and to generate an adequate level of interest income without taking undue risks. Our investment policy permits investment in various types of securities, certificates of deposits and federal funds sold in compliance with various restrictions in our policy. Our investment portfolio consists of government sponsored agency bonds, mortgage backed securities, Collaterized Mortgage Obligations (“CMOs”), bank-qualified California municipals, and corporate bonds.

     Securities are classified as held-to-maturity or available-for-sale. We do not maintain a trading portfolio. Securities in the held-to-maturity category consist of securities purchased for long-term investment in order to enhance our ongoing stream of net interest income. Securities deemed held-to-maturity are classified as such because we have both the intent and ability to hold these securities to maturity. Securities purchased to meet investment-related objectives such as interest rate risk and liquidity management, but which may be sold as necessary to implement management strategies, are designed as available-for-sale at the time of purchase. At December 31, 2003, we had $2.0 million in securities held-to- maturity and $126.4 million in securities available-for-sale. We purchased $92.4 million and sold $21.6 million in investment securities during 2003.

Deposit Activities

     We attract both short-term and long-term deposits from the general public by offering a wide range of deposit products and services. Through our branch network, we provide our banking customers with money market accounts, savings and checking accounts, certificate of deposit, individual retirement accounts, business checking accounts, 24-hour automated teller machines, and internet banking and bill-pay services.

     Our primary source of funds is FDIC-insured deposits. We try to match our interest-bearing liabilities with our interest-earning assets. We cover all volatile funds with liquid assets as a method to ensure adequate liquidity. Thus, we analyze our deposits’ maturities and interest rates to monitor and control the cost of funds and review the stability of the supply of funds. We believe our deposits are a stable and reliable funding source.

Borrowing Activities

     When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may borrow funds from both our corresponding banks and the Federal Reserve Bank, also known as the FRB. The maximum amount that we currently are authorized to borrow from our correspondent banks is $46 million on an overnight basis. In addition to the correspondent banks, the maximum amount that we may borrow from the FRB discount window is 97% of the market value of the pledged security. At December 31, 2003, the par value of the pledged security was $5.0 million.

     The Federal Home Loan Bank System functions in a reserve credit capacity for qualifying financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of San Francisco (“FHLBSF”) and may apply for advances from the FHLBSF utilizing Federal Home Loan Bank stock, qualifying mortgage loans and mortgage-backed securities as collateral.

     The FHLBSF offers a full range of borrowing program on its advance with terms of up to ten years at competitive market rates. A prepayment penalty is usually imposed for early repayment of these advances. As a member of Federal Reserve Bank, we may also borrow from the Federal Reserve Bank of San Francisco.

Market Area and Competition

     Most of our services are offered in Los Angeles County, Orange County, the San Francisco Bay Area, Silicon Valley (Santa Clara County), and the New York metropolitan area, each of which have high concentrations

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of Korean-Americans. The banking and financial services industry generally, and in our market areas specifically, are highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers as well as strong competition amongst the banks serving the Korean-American communities. In addition, recent federal legislation may have the effect of further increasing the pace of consolidation within the financial services industry. See “Item 1. Business — Supervision and Regulation — Financial Services Modernization Legislation.”

     We compete for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we do. We have 15 branch offices located in Los Angeles, Orange County, Oakland, Silicon Valley, New York and 5 loan production offices located in Seattle, Chicago, New Jersey, Atlanta, and Virginia.

Economic Conditions, Government Policies and Legislation

     Our profitability, like most financial institutions, primarily depends on interest rate differentials. In general, the difference between the interest rates paid on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received on our interest-earning assets, such as loans extended to our clients and securities held in our investment portfolio, comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment. The impact that future changes in domestic and foreign economic conditions might have on our performance cannot be predicted.

     Our business also is influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on Nara Bancorp and Nara Bank of future changes in monetary and fiscal policies cannot be predicted.

     From time to time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This legislation may change banking statutes and the operating environment of Nara Bancorp and its subsidiaries in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations of us or any of our subsidiaries. See “Item 1. Business - Supervision and Regulation below.”

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Supervision and Regulation

     General

     Bank holding companies and banks are extensively regulated under both federal and state law. These regulations are intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of our stockholders. Set forth below is a summary description of the material laws and regulations, which relate to our operations. The description is qualified in its entirety by reference to the applicable laws and regulations.

     Nara Bancorp

     As a registered bank holding company, we are subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHCA”). We are required to file with the FRB periodic reports and such additional information as the FRB may require pursuant to the BHCA. The OCC and FRB may conduct examinations of our subsidiaries and us.

     The FRB may require that we terminate an activity or terminate control of or liquidate or divest ourselves of certain subsidiaries or affiliates when the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of our banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, we must file written notice and obtain approval from the FRB prior to purchasing or redeeming our equity securities.

     Further, we are required by the FRB to maintain certain levels of capital. See “Capital Standards.”

     We are required to obtain the prior approval of the FRB for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the FRB is also required if we merge or consolidate with another bank holding company. We are prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to our subsidiaries. However, subject to the prior approval of the FRB, we may engage in any, or acquire shares of companies engaged in, activities that are deemed by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident there to.

     Under FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB’s policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB’s regulations or both.

     We are also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, we and our subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions.

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     Our securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.

     Nara Bank, N.A.

     Nara Bank, as a national banking association, is subject to primary supervision, examination, and regulation by the Office of the Comptroller of the Currency (the “OCC”). To a lesser extent, Nara Bank is also subject to regulations of the Federal Deposit Insurance Corporation (the “FDIC”) as administrator of the Bank Insurance Fund and the FRB. If, as a result of an examination of Nara Bank, the Office of the Comptroller of the Currency should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of Nara Bank’s operations are unsatisfactory or that Nara Bank or its management is violating or has violated any law or regulation, various remedies are available to the Office of the Comptroller of the Currency. Such remedies include the power to enjoin “unsafe or unsound practices,” to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of Nara Bank, to assess civil monetary penalties, and to remove officers and directors. The FDIC has similar enforcement authority, in addition to its authority to terminate Nara Bank’s deposit insurance in the absence of action by the Office of the Comptroller of the Currency and upon a finding that Nara Bank is in an unsafe or unsound condition, is engaging in unsafe or unsound activities, or that its conduct poses a risk to the deposit insurance fund or may prejudice the interest of its depositors.

     Various requirements and restrictions under the laws of the United States and the State of California affect the operations of Nara Bank. Federal and California statutes and regulations relate to many aspects of Nara Bank’s operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices and new products and services. Further, Nara Bank is also required to maintain certain minimum levels of capital. See “Capital Standards.”

     In February 2002, Nara Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”) in connection with alleged deficiencies relating to the lack of sufficient internal controls, procedures and inadequate compliance with the Bank Secrecy Act. During 2002, management took steps to comply with the Consent Order and to further compliance with the Bank Secrecy Act, including, but not limited to, the implementation of new IT systems and the expansion of employee training programs. On January 22, 2003, the OCC terminated the Consent Order, and as of such date Nara Bank was no longer subject to its requirements.

Sarbanes-Oxley Act of 2002

     On July 30, 2002, the President signed into law the “Sarbanes-Oxley Act of 2002” (the “SOA”). The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SOA has resulted in broad corporate and accounting reform for public companies and the accounting firms that audit them. Many provisions of the SOA became effective immediately and others became effective since passage of the law or will become effective during 2003.

     The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, or the “Exchange Act”. The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA also represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

     The SOA contains the following important requirements, among other things:

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• prohibition of most loans to a public company’s directors and executive officers;

• the chief executive officer and chief financial officer of a public company must certify each SEC periodic report containing financial statements;

• audit committee approval is required for any services provided to a company by the audit firm, with certain exceptions for de minimis services;

• new requirements for the major stock exchanges to adopt independence standards for audit committees and boards of directors;

• all SEC periodic reports containing financial statements must reflect all “material correcting adjustments” that have been identified by a company’s audit firm;

• new “real time” reporting by the company of certain material changes in the financial condition or operations of the company, via reports filed on Form 8-K;

• new whistleblower protections for employees who come forward with information relating to violations of the federal securities laws;

• potential compensation disgorgement provisions applicable to the company’s CEO and CFO upon a restatement of financial results attributable to misconduct;

• timing for Form 4 reports by executive officers and directors and other Section 16 insiders has been accelerated to two business days from the date of any transaction;

• new and expanded criminal penalties for various securities law violations and changes to the statute of limitations applicable to private securities law enforcement actions.

     To date, the SEC and the securities exchanges have implemented most of the requirements of the SOA. However, the SEC continues to issue final rules and interpretations in connection with the new requirements, and we intend to review these new requirements and comply as required. Although we anticipate that we will incur additional expense in complying with the new requirements under SOA and applicable rules and regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition.

     USA Patriot Act of 2001

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

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

• standards for verifying customer identification at account opening;

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

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• reports by nonfinancial trades and businesses filed with the Treasury Department’s Financial Crimes Enforcement Network for cash transactions exceeding $10,000; and

• filing of suspicious activities reports securities by brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

     The Department of the Treasury in consultation with the FRB and other federal financial institution regulators has promulgated rules and regulations implementing the Patriot Act which:

• prohibits U.S. correspondent accounts with foreign banks that have no physical presence in any jurisdiction;

• require financial institutions to maintain certain records for correspondent accounts of foreign banks;

• require financial institutions to produce certain records relating to anti-money laundering compliance upon request of the appropriate federal banking agency;

• require due diligence with respect to private banking and correspondent banking accounts;

• facilitate information sharing between the government and financial institutions; and

• require financial institutions to have in place a money laundering program.

     On May 9, 2003, the Department of Treasury, in conjunction with other bank regulators, issued a Joint Final Rule that provides for minimum standards with respect to customer identification and verification. We were required to comply with this rule by October 1, 2003. We have implemented and will continue to implement the provisions of the Patriot Act as such provisions become effective. We currently maintain and will continue to maintain policies and procedures to comply with the Patriot Act requirements. At this time, we do not expect that the Patriot Act will have a significant impact on our operations.

     Financial Services Modernization Legislation

     General. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 also referred to as the “FSMA”. The FSMA repeals the two affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms “engaged principally” in specified securities activities; and Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person “primarily engaged” in specified securities activities. In addition, the FSMA also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a financial holding company.

     The law also:

• broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;

• provides an enhanced framework for protecting the privacy of consumer information;

• adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;

• modifies the laws governing the implementation of the Community Reinvestment Act; and

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• addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

     We do not believe that the FSMA will have a material adverse effect on our operations in the near-term. However, to the extent that it permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation and banks may increasingly diversify the financial products that they offer. The FSMA is intended to grant to community banks, such as Nara Bank, certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, the FSMA may have the result of increasing the amount of competition that we face from larger institutions and other types of companies offering financial products, many of which may have substantially greater financial resources than we do.

     Financial Holding Companies. Bank holding companies that elect to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or are incidental or complementary to activities that are financial in nature. “Financial in nature” activities include:

• securities underwriting;

• dealing and market making;

• sponsoring mutual funds and investment companies;

• insurance underwriting and agency;

• merchant banking; and

• activities that the FRB, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

     Prior to filing a declaration of its election to become a financial holding company, all of the bank holding company’s depository institution subsidiaries must be well capitalized, well managed, and, except in limited circumstances, in compliance with the Community Reinvestment Act.

     Failure to comply with the financial holding company requirements could lead to divestiture of subsidiary banks or require all activities of such company to conform to those permissible for a bank holding company. No FRB approval is required for a financial holding company to acquire a company (other than a bank holding company, 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:

• lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities;

• providing any devise or other instrumentality for transferring money or other financial assets; or

• arranging, effecting or facilitating financial transactions for the account of third parties.

     A bank holding company that is not also a financial holding company can only engage in banking and such other activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

     We have not elected to become a financial holding company, although our management may reevaluate this decision as business conditions require.

     Expanded Bank Activities. The FSMA also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance

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investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the BHCA or permitted by regulation.

     A national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be “well-capitalized,” “well-managed” and in compliance with the Community Reinvestment Act. The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank’s total assets, or $50 billion. A national bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank’s assets. The bank must also have policies and procedures to assess financial subsidiary risk and protect the bank from such risks and potential liabilities.

     Privacy. Under the FSMA, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide:

• initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;

• annual notices of their privacy policies to current customers; and

• a reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties.

     These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. We do not believe that these privacy provisions will have a significant impact on our operations.

     Dividends and Other Transfers of Funds

     Dividends from Nara Bank constitute the principal source of income to Nara Bancorp. Nara Bancorp is a legal entity separate and distinct from Nara Bank. Nara Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to Nara Bancorp. Under such restrictions, the amount available for payment of dividends to Nara Bancorp by Nara Bank totaled $56.8 million at December 31, 2003. In addition, the OCC and the FRB have the authority to prohibit Nara Bank from paying dividends, depending upon Nara Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice.

     Transactions with Affiliates

     Nara Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, Nara Bancorp or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of Nara Bancorp or other affiliates. Such restrictions prevent Nara Bancorp and such other affiliates from borrowing from Nara Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by Nara Bank to or in Nara Bancorp or to or in any other affiliate are limited in the amounts indicated below for “covered transactions” under Regulation W. California law also imposes certain restrictions with respect to transactions involving Nara Bancorp and other controlling persons of Nara Bank. Additional restrictions on transactions with affiliates may be imposed on Nara Bank under the prompt corrective action provisions of federal law. See “- Prompt Corrective Action and Other Enforcement Mechanisms.”

     Regulation W. During 2003 the Federal Reserve Board’s newly-issued Regulation W became effective, which codifies prior regulations under and interpretative guidance with respect to transactions with affiliates. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” (as defined below) with affiliates:

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• to an amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and

• to an amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates.

     In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies.

     A “covered transaction” includes:

• a loan or extension of credit to an affiliate;

• a purchase of, or an investment in, securities issued by an affiliate;

• a purchase of assets from an affiliate, with some exceptions;

• the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and

• the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In addition, under Regulation W:

• a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;

• covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and

• with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.

     Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the FRB decides to treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W, the FRB has proposed a regulation, which would further limit the amount of loans that could be purchased by a bank from an affiliate to not more than 100% of the bank’s capital and surplus.

     Capital Requirements

     The federal banking agencies have adopted risk-based minimum capital guidelines intended 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 which are recorded as off balance sheet items. Under these guidelines, 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 federal banking agencies, to 100% for assets with relatively high credit risk. The higher the category, the more risk a bank is subject to and thus the more capital that is required. As of December 31,2003, Nara Bank’s total risk-based capital ratio was 10.4 %.

     The guidelines divide a bank’s capital into two tiers. Tier I includes common equity, retained earnings, certain non-cumulative perpetual preferred stock, and minority interest in equity accounts of consolidated subsidiaries. Goodwill and other intangible assets (except for mortgage servicing rights and purchased credit card relationships, subject to certain limitations) are subtracted from Tier I capital.

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Tier II capital includes, among other items, cumulative perpetual and long-term, limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses (subject to certain limitations). Certain items are required to be deducted from Tier II capital. Banks must maintain a total risk-based ratio of 8%, of which at least 4% must be Tier I capital.

     In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 4%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. For further discussion of our capital, see Capital Resources under “Management Discussion and Analysis”.

     On July 2, 2003, the Federal Reserve Bank issued Supervisory Letter SR 03-13 clarifying that Bank Holding Companies should continue to report trust preferred securities in accordance with current Federal Reserve Bank instructions which allows trust preferred securities to be counted in Tier 1 capital subject to certain limitations. The Federal Reserve has indicated it will review the implications of any accounting treatment changes and, if necessary or warranted, will provide appropriate guidance.

     The following table presents the amounts of regulatory capital and the capital ratios for Nara Bancorp and Nara Bank, compared to their minimum regulatory capital requirements as of December 31, 2003.

	As of December 31, 2003 (Dollars in thousands)
Nara Bancorp	Actual					Required					Excess
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 capital to average assets	$	106,632		8.8	%	$	48,255		4.0	%	$	58,377		4.8	%
Tier 1 risk-based capital ratio	$	106,632		9.8	%	$	43,414		4.0	%	$	63,218		5.8	%
Total risk-based capital ratio	$	127,907		11.8	%	$	86,829		8.0	%	$	41,078		3.8	%

	As of December 31, 2003 (Dollars in thousands)
Nara Bank	Actual					Required					Excess
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I capital to average assets	$	100,167		8.3	%	$	48,256		4.0	%	$	51,911		4.3	%
Tier 1 risk-based capital ratio	$	100,167		9.2	%	$	43,365		4.0	%	$	56,802		5.2	%
Total risk-based capital ratio	$	112,638		10.4	%	$	86,730		8.0	%	$	25,908		2.4	%

     In addition, federal banking regulators may set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. For further discussion of our Capital, see Capital Resources under “Management Discussion and Analysis.”

     Prompt Corrective Action and Other Enforcement Mechanisms

     Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2003, Nara Bank exceeded the required ratios for classification as “well capitalized.”

     An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal

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banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

     In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement 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. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized — without the express permission of the institution’s primary regulator.

     Safety and Soundness Standards

     The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

     Premiums for Deposit Insurance

     Through the Bank Insurance Fund (“BIF”), the FDIC insures the deposits of Nara Bank up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

     FDIC-insured depository institutions pay an assessment rate equal to the rate assessed on deposits insured by the Savings Association Insurance Fund (“SAIF”).

     The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. An increase in the assessment rate could have a material adverse effect on our earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for Nara Bank could have a material adverse effect on our earnings, depending on the collective size of the particular institutions involved.

     All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the

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Federal Savings and Loan Insurance Corporation. The current FICO assessment rate for BIF-insured deposits is $0.016 per $100 of assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC’s insurance funds and do not vary depending on a depository institution’s capitalization or supervisory evaluations.

     Interstate Banking and Branching

     The BHCA permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including certain nationwide and state imposed concentration limits. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets.

     Community Reinvestment Act and Fair Lending Developments

     We are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities (“CRA”). 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. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

     A bank’s compliance with its CRA obligations is based a performance-based evaluation system, which bases CRA ratings on an institution’s lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application.

     Federal Reserve System

     The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2003, we believe that Nara Bank was in compliance with these requirements.

Employees

     As of December 31, 2003, we had 320 full-time equivalent employees. None of our employees are represented by a union or covered by a collective bargaining agreement. Management believes that its relations with its employees are good. See Item 4(a) below for a list of executive officers.

Factors That May Impact Our Business or the Value of Our Stock

     Set forth below are certain factors that may affect our financial results and operations, which you should consider when evaluating our business and prospects.

Deterioration of economic conditions in California, New York or South Korea could adversely affect our loan portfolio and reduce the demand for our services. We focus our business primarily in Korean communities in California and in the greater New York City metropolitan area. A deterioration in economic conditions in our market areas could have a material adverse impact on the quality of our business. An economic slowdown in

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California, New York, or South Korea could have the following consequences, any of which could reduce our net income:

• Loan delinquencies may increase;

• Problem assets and foreclosures may increase;

• Claims and lawsuits may increase;

• Demand for our products and services may decline; and

• Collateral for loans may decline in value below the principal amount owed by the borrower.

Loan loss reserves may not cover actual loan losses. If our actual loan losses exceed the amount we have reserved for probable losses, it will hurt our business. We try to limit the risk that borrowers will fail to repay loans by carefully underwriting the loans. Losses nevertheless occur. We create reserves for estimated loan losses in our accounting records. We base these allowances on estimates of the following:

• industry standards;

• historical experience with our loans;

• evaluation of current economic conditions;

• regular reviews of the quality, mix and size of the overall loan portfolio;

• regular reviews of delinquencies; and

• the quality of the collateral underlying our loans.

     A downturn in the real estate market could seriously impair our loan portfolio. As of December 31, 2003, approximately 48.7% of the value of our loan portfolio consisted of loans secured by various types of real estate. If real estate values decline significantly, especially in California or New York, higher vacancies and other factors could harm the financial condition of our borrowers, the collateral for our loans will provide less security, and we would be more likely to suffer losses on defaulted loans.

     Changes in interest rates affect our profitability. Changes in prevailing interest rates may hurt our business. We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the wider the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases on our spread and can greatly affect our income. In addition, interest rate fluctuation can affect how much money we may be able to lend. For example, when interest rates rise, loan originations tend to decrease.

     If we lose key employees, our business may suffer. If we lost key employees temporarily or permanently, it could hurt our business. We could be particularly hurt if our key employees went to work for competitors. Our future success depends on the continued contributions of existing senior management personnel.

     Environmental laws could force us to pay for environmental problems. The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. When a borrower defaults on a loan secured by real property, we often purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We also lease premises where our branches and other facilities are located and where environmental problems may exist. Although we have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that we own, lease, manage or occupy. We may face the risk that environmental laws could force

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us to clean up the properties at our expense. It may cost much more to clean a property than the property is worth. We also could be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default. We may find it difficult or impossible to sell contaminated properties.

     We are exposed to the risks of natural disasters. A significant portion of our operations is concentrated in Southern California. California is in an earthquake-prone region. A major earthquake could result in material loss to us. A significant percentage of our loans are and will be secured by real estate. Many of our borrowers could suffer uninsured property damage, experience interruption of their businesses or lose their jobs after an earthquake. Those borrowers might not be able to repay their loans, and the collateral for such loans could decline significantly in value. Unlike a bank with operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.

     An increase in non-performing assets would reduce our income and increase our expenses. If the level of non-performing assets rises in the future, it could adversely affect our operating results. Non-performing assets are mainly loans on which the borrowers are not making their required payments. Non-performing assets also include loans that have been restructured to permit the borrower to have smaller payments and real estate that has been acquired through foreclosure of unpaid loans. To the extent that assets are non-performing, we have less cash available for lending and other activities.

     Changes in Governmental regulation may impair our operations or restrict our growth. We are subject to significant governmental supervision and regulation. These regulations are intended primarily for the protection of depositors. Statutes and regulations affecting our business may be changed at any time, and the interpretation of these statutes and regulations by examining authorities may also change. Within the last several years Congress and the President have passed and enacted significant changes to these statutes and regulations. There can be no assurance that such changes to the statutes and regulations or in their interpretation will not adversely affect our business. Nara Bank is subject to regulation and examination by the Comptroller of the Currency. In addition to governmental supervision and regulation, Nara Bank is subject to changes in other federal and state laws, including changes in tax laws, which could materially affect the banking industry. Nara Bancorp is subject to the rules and regulations of the Federal Reserve Board. If we fail to comply with federal and state bank regulations, the regulators may limit our activities or growth, fine us or ultimately put us out of business. Banking laws and regulations change from time to time. Bank regulations can hinder our ability to compete with financial services companies that are not regulated or are less regulated. In addition, Nara Bank has an active program of originating and selling loans guaranteed by the Small Business Administration (SBA). There have been recent proposals to the percentage of loan guarantees provided by the SBA on some categories of SBA loans to 50% from 75%. If this occurs, it is likely that we will experience a significant decrease in the number of SBA loans that we originate and sell, particularly the “7(a)” loans. See “Lending Activities” above.

     Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:

• the capital that must be maintained;

• the kinds of activities that can be engaged in;

• the kinds and amounts of investments that can be made;

• the locations of offices;

• how much interest can be paid on demand deposits;

• insurance of deposits and the premiums that must be paid for this insurance; and

• how much cash must be set aside as reserves for deposits.

     Our stock price may be volatile, which could result in substantial losses for our stockholders. The market price of our common stock could be subject to wide fluctuations in response to a number of factors, including:

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• issuing new equity securities pursuant to this offering or otherwise;

• the amount of our common stock outstanding and the trading volume of our stock;

• actual or anticipated changes in our future financial performance;

• changes in financial estimates of us by securities analysts;

• competitive developments, including announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

• the operating and stock performance of our competitors;

• changes in interest rates; and

• additions or departures of key personnel at the management company.

Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock. In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings by us may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Our preferred stock, if issued, would have a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock or diluting their stock holdings in us.

Accounting Matters

     SFAS No. 148, Accounting for Stock-based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123, amends 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. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148 are effective for annual financial statements for fiscal years ending after December 15, 2002 and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We have not determined whether we will adopt the fair value-based method of accounting for stock-based employee compensation in future periods.

     The FASB issued Interpretation No. (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107 and rescission of FIN 34, Disclosure of Indirect Guarantees of Indebtedness of Others, in November 2002. FIN

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45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of such interpretation did not have a material impact on our results of operations, financial position or cash flows.

     In January 2003, the FASB issued Interpretation No. 46 — “Consolidation of Variable Interest Entities” (“FIN 46”). In December 2003, the FASB revised FIN 46 and codified certain FASB Staff Positions previously issued for FIN 46 (“FIN 46R). The objective of FIN 46 as originally issued, and as revised by FIN 46R, was to improve financial reporting by companies involved with variable interest entities. Prior to the effectiveness of FIN 46, we generally included another entity in our consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changed that standard by requiring a variable interest entity to be consolidated if we were subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 applied immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to older entities in the first fiscal year or interim period beginning after June 15, 2003. The provisions of FIN 46R are required to be adopted prior to the first reporting period that ends after March 15, 2004. Our adoption of FIN 46 and FIN46R did not have a significant impact on our financial position, results of operations, or cash flows.

     In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for differences between the contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased loans or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and debt securities acquired after December 31, 2004. Although we anticipate that the implementation of SOP 03-3 will require significant loan system and operational changes to track credit related losses on loans purchased starting in 2005, it is not expected to have a significant effect on our consolidated financial statements.

Item 2. PROPERTIES

     Our principal executive offices are located at 3701 Wilshire Blvd., Los Angeles, California 90010. We conduct our operations through nine full branch offices, six mini branch offices and four loan production offices located throughout California, in the greater New York City metropolitan area and in Chicago, Seattle, New Jersey, and Atlanta. We lease all of our offices. We believe our present facilities are adequate for our present needs. We also believe that, if necessary, we could secure suitable alternative facilities or similar terms, without adversely impacting operations. The locations of our full branch offices, including headquarters are as follows:

Office Name	Address
Cerritos	4875 La Palma Avenue, La Palma, CA 90623
Downtown	1122 S. Wall Street, Los Angeles, CA 90015
Flushing	138-02 Northern Blvd., Flushing, NY 11354
Headquarters	3701 Wilshire Blvd, Suite 220, Los Angeles, CA 90010
Jackson Heights	78-14 Roosevelt Avenue, Jackson Heights, NY 11372

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Manhattan	29 W. 30th Street, New York, NY 10001
Oakland	2250 Broadway, Oakland, CA 94612
Olympic	2727 W. Olympic Blvd., Los Angeles, CA 90006
Silicon Valley	1102 E. El Camino Real, Sunnyvale, CA 94087
Wilshire	3600 Wilshire Blvd, Suite 100-A, Los Angeles, CA 90010

     Our five mini branches are located inside supermarkets and the Aroma office is located inside the Sports Center Building in Los Angeles. The locations are as follows:

Office Name	Address
Aroma	3680 Wilshire Blvd., Suite 106, Los Angeles, CA 90010
Fullerton	5301 Beach Blvd., Buena Park, CA 90621
Glendale	831 N. Pacific Ave., Glendale, CA 91203
Torrance	3030 W. Sepulveda Blvd., Torrance, CA 90505
Valley	17369 Sherman Way, Van Nuys, CA 91406
Diamond Bar	21080 Golden Springs Drive, Diamond Bar, CA 91789

     We currently have five loan production offices to promote SBA loans. We have SBA Preferred Lender status in those areas. The locations are as follows:

Office Name	Address
Atlanta	3510 Shallowford Road, Suite 207, Atlanta, GA 30341
Chicago	5901 N. Cicero Avenue Suite 508, Chicago, IL 60646
New Jersey	118 Broad Avenue Suite N-11, Palisades Park, NJ 07650
Seattle	12600 S.E. 38th Street, Suite 230, Bellevue, WA 98006
Virginia	7023 Little River Turnpike Suite 206 Annandale, VA 22003

Item 3. LEGAL PROCEEDINGS

     We are a party to routine litigation incidental to our business, none of which is considered likely to have a material adverse effect on us.

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

     No matter was submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2003.

     Item 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT

     The following individuals are executive officers of Nara Bancorp and officers who are deemed to be executive officers of Nara Bancorp. Pertinent information relating to these individuals is set forth below. There are no family relationships between any of the officers.

Benjamin B. Hong- Chief Executive Officer and President — Age 71

     Mr. Hong has served as President and Chief Executive Officer of Nara Bank since 1994 and as President and Chief Executive Officer of Nara Bancorp since February 2001. Mr. Hong previously served as President and Chief Executive Officer of Hanmi Bank from 1988 to 1994. Mr. Hong briefly retired from September 2, 2003 to December 1, 2003 when Mr. Seong-Hoon Hong served as President and CEO of Nara Bank and Nara Bancorp. In December 2003, Mr. Hong returned as Interim President and CEO after Mr. Seong-Hoon Hong resigned. Mr. Hong is currently acting as Interim President and CEO until the board appoints a successor.

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Min Jung Kim – Executive Vice President and Chief Operating Officer — Age 44

     Ms. Kim has served as Executive Vice President and Chief Operating Officer of Nara Bank and Nara Bancorp since November 2003. Mr. Kim previously served as Executive Vice President and Credit Officer of Nara Bank since 1995 and as Executive Vice President and Chief Credit Officer of Nara Bancorp since February 2001. Ms. Kim served as Vice President and Manager of the Western Branch of Hanmi Bank from 1992 to 1995.

Timothy Chang – Senior Vice President and Chief Financial Officer — Age 35

Mr. Chang has served as Senior Vice President and Chief Financial Officer of Nara Bank and Nara Bancorp since 2003 . Mr. Chang previously served as Vice President and Treasurer of Nara Bank from 2000 to 2003.

Bonita Lee – Senior Vice President and Chief Credit Officer — Age 41

     Ms. Bonita Lee has served as Senior Vice President and Chief Credit Officer of Nara Bank since 2003. Ms. Lee previously served as Senior Vice President and Credit Administrator from February 2000 to 2003. She joined the Bank in November of 1993 and served in various positions in lending department.

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Part II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock, par value $0.001 per share, began trading on the Nasdaq National Market on February 5, 2001 under the symbol “NARA.” The common stock of Nara Bank, par value $3.00 per share, also was traded on the Nasdaq National Market under the symbol “NARA” through February 2, 2001, which was Nara Bank’s last trading day.

     There were 11,582,700 shares of common stock held by approximately 1,655 beneficial owners and 598 registered owners as of February 29, 2004. The following table sets forth, for the calendar quarters indicated, the range of high and low sales prices for the common stock of Nara Bancorp and Nara Bank, as applicable, for each quarter within the last two fiscal years. Sales prices represent actual sales of which our management has knowledge. Prices adjusted to reflect the effect of stock split which took effect in March 17, 2003

Quarters ended:	High Sales Price		Low Sales Price
March 31, 2002	$	10.88	$	7.87
June 30, 2002	$	11.83	$	10.63
September 30, 2002	$	11.74	$	7.92
December 31, 2002.	$	11.05	$	8.49
March 31, 2003	$	13.35	$	10.28
June 30, 2003	$	18.73	$	12.43
September 30, 2003	$	21.62	$	17.14
December 31, 2003.	$	27.95	$	18.12

     Dividends

     The following table shows cash dividends declared during 2003.

Declaration Date	Payable Date	Record Date	Amount
December 1, 2003	January 12, 2004	December 31, 2003	$0.05/share
August 25, 2003	October 10, 2003	September 30, 2003	$0.05/share
May 28, 2003	July 10, 2003	June 30, 2003	$0.05/share
February 18, 2003	April 11, 2003	March 31, 2003	$0.05/share

     Future dividends are subject to the discretion of our Board of Directors and will depend upon a number of factors, including future earnings, financial condition, cash needs and general business conditions. Any dividend must comply with applicable bank regulations.

     Our ability to pay dividends is subject to restrictions set forth in the Delaware General Corporation Law. The Delaware General Corporation Law provides that a Delaware corporation may pay dividends either (i) out of

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the corporation’s surplus (as defined by Delaware law), or (ii) if there is no surplus, out of the corporation’s net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

     Our ability to pay cash dividends in the future will depend in large part on the ability of Nara Bank to pay dividends on its capital stock to us. The ability of Nara Bank to pay dividends to us is subject to restrictions set forth in the National Bank Act and the rules of the Office of Comptroller of the Currency. Pursuant to such regulations, among other restrictions, Nara Bank cannot pay dividends out of its capital; all dividends must be paid out of net profits then on hand, after deducting for expenses such as losses and bad debts. In addition, the payment of dividends out of net profits of a national bank is further limited by a statute which prohibits a bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock, or if the surplus fund does not equal the amount of capital stock, until not less than one-tenth of its net profits for the preceding half-year (in the case of quarterly dividends) or at least one-tenth of its net profits for the preceding year (in case of annual dividends) are transferred to the surplus fund.

Item 6. SELECTED FINANCIAL DATA

     The following table presents selected financial and other data of Nara Bancorp and prior to the February 2001 reorganization, financial and other data of Nara Bank, for each of the years in the five-year period ended December 31, 2003. The information below should be read in conjunction with, and is qualified in its entirety by, the more detailed information included elsewhere herein including our Audited Consolidated Financial Statements and Notes thereto.

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	For The Year Ended December 31,
	2003			2002			2001			2000			1999
	(Dollars in thousands, except per share data)
Statement of Income Data
Total interest income	$	61,425		$	48,571		$	47,860		$	41,602		$	25,256
Total interest expense		15,934			13,464			16,970			14,149			7,919
Net interest income before provision for (recapture of) loan losses		45,491			35,107			30,890			27,453			17,337
Provision for (recapture of) loan losses		5,385			2,686			750			(1,100	)		3,395
Non-interest income		20,378			18,001			15,324			13,518			8,024
Non-interest expense		37,305			32,341			28,364			24,830			16,337
Income before income tax provision and cumulative effect of a change in accounting principle		23,179			18,081			17,100			17,241			5,629
Income tax provision		8,866			6,777			6,316			6,784			1,657
Net income before cumulative effect of a change in accounting principle		14,313			11,304			10,784			10,457			3,972
Cumulative effect of a change in accounting principle.		—			4,192			—			—			—
Net Income	$	14,313		$	15,496		$	10,784		$	10,457		$	3,972
Per Share Data:
Earnings before cumulative effect of a change in accounting principle – basic	$	1.30		$	1.03		$	0.98		$	1.04		$	0.42
Earnings before cumulative effect of a change in accounting principle– diluted		1.24			0.98			0.93			0.99			0.40
Earnings after cumulative effect of a change in accounting principle – basic		1.30			1.41			0.98			1.04			0.42
Earnings after cumulative effect of a change in accounting principle– diluted		1.24			1.35			0.93			0.99			0.40
Book value (period end)		7.35			6.11			4.97			4.07			3.03
Number of common shares outstanding (period end)		11,560,089			10,690,630			11,145,674			10,923,858			8,807,506
Statement of Financial Condition Data — At Period End:
Assets	$	1,260,028		$	980,484		$	679,438		$	602,563		$	359,090
Securities		128,414			104,402			69,455			70,659			33,331
Loans, net		988,794			721,357			502,141			355,724			235,479
Deposits		1,061,415			816,918			589,844			527,709			319,869
Federal Home Loan Bank Borrowings		60,000			65,000			5,000			5,000			N/A
Junior Subordinated Debenture		39,268			18,648			10,400			N/A			N/A
Stockholders’ equity		84,997			65,369			55,427			44,512			26,726
Average Balance Sheet Data:
Assets	$	1,087,041		$	786,218		$	635,337		$	479,898		$	312,757
Securities		135,362			90,460			70,615			50,244			22,622
Loans, net		828,796			600,075			447,225			307,382			205,991
Deposits		895,883			649,829			550,356			428,872			280,283
Stockholders’ equity		75,284			62,224			50,447			34,496			24,944
Selected Performance Ratios:
Return on average assets before cumulative effect		1.32	%		1.44	%		1.70	%		2.18	%		1.27	%
Return on average assets after cumulative effect		N/A			1.97	%		N/A			N/A			N/A
Return on average stockholders’ equity before cumulative effect		19.01	%		18.17	%		21.38	%		30.31	%		15.92	%
Return on average stockholders’ equity after cumulative effect		N/A			24.90	%		N/A			N/A			N/A
Net interest spread (1)		3.92	%		4.03	%		3.97	%		4.83	%		4.87	%
Net interest margin (2)		4.51	%		4.86	%		5.40	%		6.53	%		6.37	%
Average shareholders’ equity to average assets		6.93	%		7.91	%		7.94	%		7.19	%		7.98	%
Regulatory Capital Ratio:
Leverage:                        Bank		8.30	%		9.26	%		8.46	%		7.66	%		7.23	%
Bancorp		8.84	%		8.72	%		9.64	%		N/A			N/A
Tier 1 risk-based            Bank		9.25	%		10.00	%		9.47	%		10.03	%		9.01	%
Bancorp		9.82	%		9.64	%		10.91	%		N/A			N/A
Total risk-based             Bank		10.40	%		11.05	%		10.92	%		11.49	%		11.49	%
Bancorp		11.78	%		10.69	%		12.37	%		N/A			N/A

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	For The Year Ended December 31,
	2003			2002			2001			2000			1999
	(Dollars in thousands, except per share data)
Asset Quality:
Nonaccrual loans	$	4,855		$	1,064		$	1,720		$	2,038		$	1,523
Loans 90 days or more past due		209			18			36			—			—
Total nonperforming loans		5,064			1,082			1,756			2,038			1,523
Other real estate owned					36			—			263			44
Restructured loans		529			1,067			—			—			—
Total nonperforming assets	$	5,593		$	2,185		$	1,756		$	2,301		$	1,567
Asset Quality Ratios:
Nonaccrual loans to net loans		0.49	%		0.15	%		0.34	%		0.57	%		0.65	%
Nonaccrual assets to total assets		0..39	%		0.11	%		0.25	%		0.34	%		0.42	%
Allowance for loan losses to net loans		1.26	%		1.17	%		1.34	%		1.96	%		1.47	%
Allowance for loan losses to nonaccrual loans		256.87	%		794.92	%		390.12	%		342.49	%		226.66	%
Net charge-offs to average net loans		0.20	%		0.17	%		0.33	%		0.83	%		1.32	%

(1)	Difference between the average yield on interest-earning assets and average rate paid on interest-bearing liabilities.
(2)	Net interest income expressed as a percentage of average total interest-earning assets.

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion provides information about our results of operations, financial condition, liquidity, and capital resources. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the accompanying notes presented elsewhere herein.

Critical Accounting Policies

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

     In accordance with SFAS No. 115, securities are classified as held-to-maturity, available-for-sale, or trading. We do not maintain a trading portfolio. Securities in the held-to-maturity category consist of securities purchased for long-term investment in order to enhance our ongoing stream of net interest income. Securities deemed held-to-maturity are classified as such because we have both the intent and ability to hold these securities to maturity and are recorded at amortized cost. Accreted discounts and amortized premiums on securities are included in interest income using the interest method, and realized gains or losses related to the sale of securities are calculated using the specific identification method. All other securities are classified as available for sale with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses in current earnings rather than in other comprehensive income. We did not have any impaired investment securities during 2003.

     Accounting for the allowance for loan losses involves significant judgments and assumptions by management, which has a material impact on the carrying value of net loans. The judgments and assumptions used by management are based on historical data and management’s view of the current economic environment as described in “Allowance for Loan and Lease Losses and Methodology”.

     We generally cease to accrue interest on any loan with respect to which the loan’s contractual payments are more than 90 days delinquent, as well as loans classified substandard for which interest payment reserves were established from loan funds rather than borrower funds. In addition, interest is not recognized on any loan for which management has determined that collection of our investment in the loan is not reasonably assured. A nonaccrual loan may be restored to accrual status when delinquent principal and interest payments are brought current, the loan is paying in accordance with its payment terms for a period, minimum six months, and future monthly principal and interest payments are expected to be allocated.

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     Properties acquired through foreclosure, or deed in lieu of foreclosure, are transferred to the other real estate owned portfolio and carried at the lower of cost or estimated fair value less the estimated costs to sell the property. The fair value of the property is based upon a current appraisal. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer is recorded as a loan charge-off if fair value is lower. Subsequent to foreclosure, management periodically performs valuations and the property is carried at the lower of carrying value or fair value, less costs to sell. The determination of a property’s estimated fair value includes revenues projected to be realized from disposal of the property, construction and renovation costs.

     Certain Small Business Administration (“SBA”) loans that we have the intent to sell prior to maturity are designated as held for sale at origination and are recorded at the lower of cost or market value, on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. A portion of the premium on sale of SBA loans is recognized as other operating income at the time of the sale. The remaining portion of the premium (relating to the portion of the loan retained) is deferred and amortized over the remaining life of the loan as an adjustment to yield. Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are recorded based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discount rate based on the related note rate plus 1 to 2 %. Servicing assets are amortized in proportion to and over the period of estimated future servicing income. Management periodically evaluates the servicing asset for impairment, which is the carrying amount of the servicing asset in excess of the related fair value. Impairment, if it occurs, is recognized in a write down or charge-off in the period of impairment.

     As part of our asset and liability management strategy, we have entered into derivative financial instruments, such as interest rate swaps, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. The objective for the interest rate swaps is to manage asset and liability positions in connection with our strategy of minimizing the impact of the interest rate fluctuations on interest rate margin. The interest rate swaps qualify as cash flow hedges under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, and are designated as hedges of the variability of cash flows we receive from certain of our Prime-indexed loans. In accordance with SFAS No. 133, these interest rate swap agreements are measured at fair value and reported as assets or liabilities on the consolidated statement of financial condition. The portion of the change in the fair value of the swaps that is deemed effective in hedging the cash flows of the designated assets is recorded as a component of accumulated other comprehensive income (“OCI”), net of tax, and reclassified into interest income as such cash flows occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss directly to the consolidated statement of income as a part of non-interest income. Currently, fair value of the interest rate swaps is estimated by discounting the future cash flows using the discount rate that was adjusted by the yield curve.

Results of Operations

General

     Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense. Generally, interest income is generated from our loans and investments and interest expense is generated from interest-bearing deposits and other borrowings that we may have, such as Federal Home Loan Bank borrowings, and trust preferred securities. Our ability to generate profitable levels of net interest income is largely dependent on our ability to maintain sound asset quality and appropriate levels of capital and liquidity. Interest income and interest expense can fluctuate widely based on changes in the level of interest rates in the economy.

     We attempt to minimize the effect of interest rate fluctuations on net interest margin by matching a portion of our interest-sensitive assets against our interest-sensitive liabilities. Net interest income also can be affected by a change in the composition of assets and liabilities, for example, if higher yielding loans were to replace a like amount of lower yielding investment securities. Changes in volume and changes in rates also affect net interest income. Volume changes are caused by differences in the level of interest-earning assets and interest-bearing liabilities. Rate changes result from differences in yields earned on assets and rates paid on liabilities.

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     We also have non-interest income from sources other than interest income. Those sources include service charges and fees on deposit accounts, fees from trade finance activities and the issuance of letters of credit, and net gains on sale of loans and investment securities available for sale. In addition to interest expense, our income is impacted by non-interest expenses, such as salaries and benefits, occupancy, furniture and equipment expenses, and provision for loan losses.

Net Income

     Our income before the cumulative effect of a change in accounting principle was $14.3 million for 2003 as compared to $11.3 million for 2002 and $10.8 million for 2001, representing an increase of 26.5% for 2003 and 4.6% for 2002. On a per diluted share basis, net earnings was $1.24, $0.98, and $0.93, for 2003, 2002 and 2001, respectively. The annualized return on average assets was 1.32% for 2003, as compared to 1.44% for 2002 and 1.70% for 2001. The annualized return on average equity was 19.01% for 2003, compared with 18.17% for 2002 and 21.38% for 2001.

     The cumulative effect of the change in accounting principle, related to the one-time recognition of negative goodwill in the consolidated statement of income at January 1, 2002 in accordance with SFAS No. 142, resulted in an increase of $4.2 million of income, for a total net income for the year ended December 31, 2002 of $15.5 million or $1.35 per diluted share.

     During 2003, the increase in net income was primarily attributable to higher net interest income resulting from growth in the loan portfolio and lower interest paid on interest-bearing liabilities. Net income in 2002 over 2001 also increased primarily due to growth in the loan portfolio despite a decline in net interest margin from a rate cut by the Federal Reserve, and an increase in non-interest income offset by higher non-interest expenses

     The following table summarizes increases and decreases, as applicable, in income and expense for the years indicated.

Operations Summary

			Increase								Increase
	Year		(Decrease)						Year		(Decrease)						Year
	Ended								Ended								Ended
(Dollars in thousands)	2003		Amount			%			2002		Amount			%			2001
Interest income	$	61,425	$	12,854			26.5	%	$	48,571	$	711			1.50	%	$	47,860
Interest expense		15,934		2,470			18.3	%		13,464		(3,506	)		-20.7	%		16,970
Net interest income		45,491		10,387			29.6	%		35,107		4,217			13.7	%		30,890
Provision for (recapture of) loan losses		5,385		2,699			100.5	%		2,686		1,936			258.1	%		750
Non-interest income		20,378		2,377			13.2	%		18,001		2,677			17.5	%		15,324
Non-interest expense		37,305		4,964			15.3	%		32,341		3,977			14.0	%		28,364
Income before income tax		23,179		5,098			28.2	%		18,081		981			5.7	%		17,100
Income tax provision		8,866		2,089			30.8	%		6,777		461			7.3	%		6,316
Income before cumulative effect of a change in accounting principle		14,313		3,012			26.6	%		11,304		520			4.8	%		10,784
Cumulative effect of a change in accounting principle		—		—			—			4,192		—			—			—
Net income	$	14,313	$	(1,180	)				$	15,496	$	520					$	10,784

Net Interest Income and Net Interest Margin

     Net interest income was $45.5 million for the year ended December 31, 2003 as compared to $35.1 million for 2002 and $30.9 million for 2001. Net interest margin was 4.5% for the year ended December 31, 2003 as compared to 4.9% for 2002 and 5.4% for 2001. Average interest-earning assets were $1,009.3 million for 2003 as compared to $722.0 million for 2002 and $572.2 million for 2001.

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     The increase of $10.4 million or 29.6 % in net interest income for 2003 over 2002 was primarily due to a 39.8% increase in average interest-earning assets, mostly in loan portfolio. The decrease in net interest margin for 2003 over 2002 was primarily due to a decline in interest rates, particularly a 25 basis cue in interest rate cut in June 2003 as well as a carryover effects of a 50 basis rate cut in November 2002. Despite 75 basis points lower in prime rate for 2003 over 2002, our net interest margin only decreased 35 basis points due to income on interest rate swaps and repricing of our interest-bearing liabilities.

     The increase of $4.2 million or 13.6% in net interest income for 2002 over 2001 was primarily due to an increase in the size of our loan portfolio. Despite the increase of $149.8 million or 26.2% in average interest-earning assets, our net interest income only increased 13.6% due to a decrease in interest margin. Net interest margin decreased 50 basis points or 9.3% to 4.9% for 2002 from 5.4% for 2001. The decrease was due to a 175 basis point cut in the prime rate during the fourth quarter of 2001, which have repriced our quarterly adjusted loans as of January 1, 2002 and additional 50 basis point rate cut in November of 2002. However, we were able to maintain the net interest spread at approximately 4.0%.

  Interest income

     Interest income was $61.4 million for the year ended December 31, 2003 as compared to $48.6 million for 2002 and $47.9 million for 2001. The average yield on interest-earning assets was 6.1% for the year ended December 31, 2003 compared to 6.7% for 2002 and 8.4% for 2001.

     The increase of $12.8 million or 26.5% in interest income in 2003, compared to 2002 was primarily due to an increase in average earning assets, mostly in our loan portfolio. Average interest-earning assets increased $287.3 million or 39.8% to $1,009.3 million for 2003 from $722.0 million for 2002. Interest and fee income on loans increased $12.0 million or 28.0% to $54.9 million for 2003 from $42.9 million for 2002. This increase is primarily due to a 38.1% increase in average net loans to $828.8 million for 2003 from $600.1 million for 2002. Also included in interest income on loans was $3.4 million received on interest rate swap transactions. Approximately $15.5 million is attributable to growth in loan volume, offset in part by a reduction of $3.5 million due to decline in rates. The average yield on net loans decreased to 6.6% in 2003 from 7.2% in 2002. Interest income on securities and other investments slightly increased $800,000 or 15.4% to $6.0 million for 2003 from $5.2 million for 2002, primarily due to an increase in our investment portfolio.

     The increase of $711,000 or 1.5% in interest income in 2002, as compared to 2001 was primarily due to an increase in our loan portfolio. Average interest-earning assets increased $149.8 million or 26.2% to $722.0 million for 2002 from $572.2 million for 2001. Interest and fee income on loans (including the effect of interest rate swaps) increased $2.4 million or 5.9% to $42.9 million for 2002 from $40.5 million for 2001. This increase is primarily due to a 34.2% increase in average net loan portfolio to $600.1 million for 2002, from $447.2 million for 2001. Approximately $12.0 million in interest income is attributable to growth in loan volume, offset in part by a reduction of $9.6 million due to decline in rates. The average yield on net loans decreased to 7.2% in 2002, from 9.0% in 2001. Interest income on securities and other investments increased $300,000 or 6.1% to $5.2 million for 2002 from $4.9 million for 2001, primarily due to an increase in investment securities portfolio.

  Interest Expense

     Deposits

     Interest expense on our deposits was $12.8 million for the year ended December 31, 2003 as compared to $10.6 million for 2002 and $15.5 million for 2001. The average cost of interest-bearing deposits was 2.0% for the year ended December 31, 2003, as compared to 2.4% for 2002 and 4.2% for 2001. The average cost of deposits was 1.4% for 2003, as compared to 1.6% for 2002 and 2.8% for 2001.

     The increase of $2.2 million or 20.8% in interest expense on deposits for 2003, as compared to 2002, was primarily due to an increase in the volume of average interest-bearing deposits. Average interest-bearing deposits increased $192.8 million or 43.8% to $633.0 million for 2003, from $440.2 million for 2002. The decrease in average cost of the deposits was primarily due to the repricing of higher cost deposits during the year. The cost of average interest-bearing deposits decreased 50 basis points during the year, primarily due to a decrease in market rates.

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     The decrease of $4.9 million or 31.6% in interest expense on deposits for 2002, as compared to 2001, was primarily due to a decrease in the cost of deposits despite the increase in average interest-bearing deposits. Average interest-bearing deposits increased $70.0 million or 18.9% to $440.2 million for 2002, from $370.2 million. The decrease in average cost of deposits was primarily due to the lower interest rate environment and repricing of higher-cost certificates of deposits. The cost of our average interest-bearing deposits decreased 177 basis points during the year.

  Borrowings

     Interest expense on our borrowings, including junior subordinated debentures, was $3.2 million for the year ended December 31, 2003 as compared to $2.9 million for 2002 and $1.5 million for 2001. The average cost of borrowings was 3.2% for the year ended December 31, 2003 as compared to 4.8% for 2002 and 9.0% for 2001.

     The increase of $300,000 or 10.3% in interest expense on borrowings for 2003, as compared to 2002 was primarily due to an increase in FHLB borrowings and three additional Junior Subordinated Debentures issued during the year. Average FHLB borrowings increased $38.2 million or 93.3% to $79.1 million for 2003 compared to $40.9 million for 2002. Additional trust preferred securities of $5.0 million were issued in June of 2003 and $15.0 million was issued in December of 2003.

     The increase of $1.4 million or 93.3% in interest expense on borrowings for 2002, as compared to 2001, was primarily due to increase in average balance partially offset by lower funding costs. The increase in average balance was due to additional issuance of Junior Subordinated Debentures of $8.0 million and an increase in Federal Home Loan Bank advances offset by payoff of subordinated notes with a 9% interest rate. The borrowings from the Federal Home Loan Bank increased to $65.0 million at December 31, 2002, from $5.0 million at December 31, 2001. The decrease in the average cost of borrowings was due to a lower interest rate environment.

Net Interest Margin and Net Interest Rate Spread

     We analyze our earnings performance using, among other measures, the interest rate spread and net interest margin. The interest rate spread represents the difference between the average yield on interest-earning assets and average rate paid on interest-bearing liabilities. Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the net interest margin.. Our net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes.

     Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and other competitive factors. These factors are in turn affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the action of the Federal Reserve Board. The table below presents the average yield on each category of interest-earning asset, average rate paid on each category of interest-bearing liability, and the resulting interest rate spread and net yield on interest-earning assets for each year in the three-year period ended December 31, 2003.

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Average Balance Sheet and Analysis of Net Interest Income

	December 31, 2003							December 31, 2002							December 31, 2001
			Interest		Average					Interest		Average					Interest		Average
			Income/		Yield			Average		Income		Yield/			Average		Income/		Yield/
	Average Balance		Expense		/ Rate			Balance		/ Expense		Rate			Balance		Expense		Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS:
Net Loans (1)(2)	$	828,796	$	54,861		6.62	%	$	600,075	$	42,893		7.17	%	$	447,225	$	39,734		9.04	%
Time deposits with other banks		91		4		4.40	%		557		11		1.97	%		2,951		201		6.81	%
Securities and others		142,007		6,042		4.25	%		93,434		5,185		5.52	%		71,792		4,932		6.87	%
Federal funds sold		38,382		518		1.35	%		27,894		482		1.63	%		50,232		2,993		4.53	%
Total interest-earning assets		1,009,276		61,425		6.09	%		721,960		48,571		6.72	%		572,200		47,860		8.36	%
Noninterest-earning assets:
Cash and due from bank		30,034							27,135							28,351
Premises and equipment, net		5,300							5,221							5,167
Accrued interest receivable		4,174							3,171							3,517
Intangible assets		3,077							1,290							1,451
Other assets		35,171							27,436							24,651
Total assets	$	1,087,041						$	786,213						$	635,337
INTEREST-BEARING LIABILITIES:
Deposits:
Demand, interest-bearing		94,268		1,299		1.38	%		82,783		1,453		1.76	%		85,815		2,653		3.09	%
Savings		151,378		3,199		2.11	%		85,786		2,080		2.42	%		67,154		2,039		3.04	%
Time certificates		387,304		8,276		2.14	%		271,646		7,073		2.60	%		217,255		10,778		4.96	%
Subordinated debentures		—		—		—			3,133		284		9.00	%		4,300		387		9.00	%
FHLB & other borrowings		79,126		1,609		2.03	%		40,932		1,213		2.96	%		5,068		342		6.75	%
Junior Subordinated Debenture		20,663		1,551		7.51	%		15,633		1,361		8.71	%		7,332		772		10.53	%
Total interest-bearing liabilities.		732,739		15,934		2.17	%		499,913		13,464		2.69	%		386,924		16,970		4.39	%
Noninterest-bearing liabilities
Demand deposits		262,933							209,614							180,132
Other liabilities		16,025							14,462							17,834
Stockholders’ equity		75,284							62,224							50,447
Total liabilities and stockholders’ equity	$	1,087,041						$	786,213						$	635,337
NET INTEREST INCOME AND YIELD:
Net interest income			$	45,491						$	35,107						$	30,890
Net interest margin						4.51	%						4.86	%						5.40	%
Net interest spread						3.92	%						4.03	%						3.97	%

(1) Loan fees and interest income from interest rate swaps are included in interest income and deferred fees and ALLL are included in net loans as follows (in thousands):

			Deferred			Allowance for
Year ended December 31,	Loan Fees		(Fees) cost			Loan Losses
2001	$	1,150	$	(650	)	$	6,710
2002	$	1,288	$	(1,326	)	$	8,458
2003	$	1,855	$	(2,164	)	$	12,471

(2) Average loans outstanding including non-accrual loans.

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     The following table shows changes in interest income (including loan fees) and interest expense and the amount attributable to variations in interest rates and volumes for the period indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amounts attributable solely to the change in volume and to the change in rate.

	December 31, 2003 compared to									December 31, 2002 compared to
	December 31, 2002									December 31, 2001
	Net			Charge due to						Net			Charge due to
	Increase									Increase
	(Decrease)			Rate			Volume			(Decrease)			Rate			Volume
	(Dollars in thousands)
INTEREST INCOME:
Interest and fees on loans and interest rate swaps	$	11,968		$	(3,487	)	$	15,455		$	2,443		$	(9,477	)	$	11,920
Interest on time deposits with other banks		(7	)		7			(14	)		(190	)		(89	)		(101	)
Interest on investments		857			(1,404	)		2,261			253			(1,059	)		1,312
Interest on federal funds sold		36			(93	)		129			(1,795	)		(1,091	)		(704	)
TOTAL INTEREST INCOME	$	12,854		$	(4,977	)	$	17,831		$	711		$	(11,716	)	$	12,426
INTEREST EXPENSE:
Interest on demand deposits	$	(154	)	$	(339	)	$	185		$	(1,200	)	$	(1,109	)	$	(91	)
Interest on savings		1,119			(296	)		1,415			41			(459	)		500
Interest on time certificates of deposit		1,202			(1,429	)		2,631			(3,704	)		(5,961	)		2,257
Interest on subordinated notes		(284	)		—			(284	)		(103	)		3			(106	)
Interest on FHLB and other borrowings.		396			(470	)		866			871			(291	)		1,162
Interest on other borrowings		190			(206	)		396			589			(154	)		743
TOTAL INTEREST EXPENSE	$	2,470		$	(2,740	)	$	5,209		$	(3,506	)	$	(7,971	)	$	4,465
NET INTEREST INCOME	$	10,384		$	(2,239	)	$	12,622		$	4,217		$	(3,814	)	$	8,031

Provision for loan losses

     The provision for loan losses on loans and leases was $5.4 million for the year ended December 31, 2003 as compared to $2.7 million for 2002 and $750,000 for 2001. The increase of $2.7 million or 96.3% in the provision for loan losses for 2003, as compared to 2002, was primarily due to growth in the loan portfolio and increase in classified loans. Our gross loans (net of unearned) increased $271.8 or 37.2% during 2003. The increase of $1.94 million or 258.7% in the provision for loan losses for 2002, as compared to 2001, was primarily due to growth in the loan portfolio. Our gross loan portfolio (net of unearned) increased $220.9 million or 43.4% during 2002. We use a systematic methodology to calculate the allowance for loan losses. Through applying this methodology, which takes into account our loan portfolio mix, credit quality, loan growth, the amount and trends relating to our delinquent and non-performing loans, regulatory policies, general economic conditions and other factors relating to the collectibility of loans in our portfolio, we determine the appropriateness of our allowance for loan losses, which is further adjusted by quarterly provisions charged against earnings.

     Refer to the section “Financial Condition- Allowance for Loan Losses” for a description of our systematic methodology employed in determining an adequate allowance for loan losses.

Noninterest Income

     Noninterest income was $20.4 million for the year ended December 31, 2003 as compared to $18.0 million for 2002 and $15.3 million for 2001. The increase was $2.4 million or 13.3% in 2003 and $2.7 million or 17.5% in 2002.

     The increase in noninterest income in 2003, as compared to 2002, was primarily due to an increase in service charges on deposits and gains on SBA loan sales. Service charges on deposits increased $1.4 million or 21.2% to $7.7 million from $6.3 million for 2002. This increase is due to an increase in non-sufficient fund (“NSF”)

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fee income. The NSF fee income increased $1.4 million or 42.4% to $4.7 million for 2003 from $3.3 million for 2002. Gain on sale of SBA loans increased $1.3 million or 40.1% to $4.3 million in 2003 from $3.0 million in 2002. We sold a total of $56.2 million in SBA loans in 2003, which was an increase of $6.2 million or 12.4% from $50.0 million in 2002.

     The increase in noninterest income in 2002, as compared to 2001, was primarily due to increases in gains on SBA loan sales and SBA servicing income, service charges on deposits, and gains on interest rate swaps that we entered into during 2002. Gain on sale of SBA loans increased $1.4 million or 87.5% to $3.0 million in 2002, from $1.6 million in 2001. We sold a total of $50.0 million in 2002, which was an increase of $19.2 million or 62.3% from $30.8 million in 2001. Service charges on deposits increased an approximately $400,000 or 6.8% to $6.3 million for 2002, from $5.9 million for 2001. This was due to an increase in demand deposits and an increase in fees on certain items, which became effective July of 2002. In 2002, we also recognized a gain of $442,000 from interest rate swap transactions, which qualified for cash flow hedge accounting.

     The breakdown of noninterest income by category is reflected below:

				Increase								Increase
	Year			(Decrease)						Year		(Decrease)						Year
	Ended									Ended								Ended
(Dollars in thousands)	2003			Amount			%			2002		Amount			%			2001
Noninterest Income:
Service charge on deposits	$	7,678		$	1,344			21.2	%	$	6,334	$	431			7.3	%	$	5,903
Net gain on sale of SBA loans		4,264			1,221			40.1	%		3,043		1,493			96.3	%		1,550
International service fee income		2,727			13			0.5	%		2,714		275			11.3	%		2,439
Wire transfer fees		1,089			114			11.7	%		975		15			1.6	%		960
Service fee income, net — SBA		854			92			12.1	%		762		331			76.8	%		431
Earnings on cash surrender value		724			76			11.7	%		648		184			39.7	%		464
Amortization of negative goodwill		—			—			—			—		(1,324	)		100.0	%		1,324
Net gain (loss) on sale of premises and equipments		(74	)		(124	)		-248.0	%		50		14			38.9	%		36
Gain on sale of securities		854			(159	)		-15.7	%		1,013		96			10.5	%		917
Gain on interest rate swaps		80			(362	)		-81.9	%		442		442			100.0	%		—
Others		2,182			162			8.0	%		2,020		720			55.4	%		1,300
Total noninterest income	$	20,378		$	2,377			13.2	%	$	18,001	$	2,677			17.5	%	$	15,324

Noninterest Expense

     Noninterest expense was $37.3 million for the year ended December 31, 2003 as compared to $32.3 million for 2002 and $28.4 million for 2001. The increase was $5.0 million or 15.3% in 2002 and $3.9 million or 14.0% in 2002.

     The increase in noninterest expense in 2003, as compared to 2002, was primarily due to increases in salaries and benefits, occupancy, and others explained below. Salaries and benefit expenses increased approximately $3.0 million or 17.1% to $20.2 million in 2003, from $17.3 million in 2002. This was primarily due to additional employees for two newly opened branches during the year and a rate increase in group insurance effective at the end of 2002. Occupancy expense also increased $600,000 or 14.6% to $4.8 in 2003, from $4.2 in 2002. This was also due to new branches opened during the year, relocation of our Manhattan office and additional expenses associated with branches of Asiana Bank, which we acquired in August of 2003. Data processing related expense increased approximately $400,000 or 22.8% to $2.1 million in 2003 from $1.7 million in 2002. This increase was primarily due to an increase in number of accounts and transactions from the existing branches as well as the accounts from the acquisitions. Professional fees also increased approximately $200,000 or 13.9% to $2.3 million in 2003 from $2.1 million in 2002. This increase is primarily due to a fee paid to establish Nara Real Estate Trust. and fees related to assumption of loans and deposits of Korea Exchange Bank, Broadway branch. Amortization of intangible assets increased $269,000 or 192.1% to $409,000 in 2003 from $140,000 in 2002. This increase is due to core deposit intangibles created from the assumption of deposits from IBKNY in November of

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2002, acquisition of Asiana Bank in August of 2003, and the assumption of deposits from KEB, Broadway in October of 2003.

     The increase in noninterest expense in 2002, as compared to 2001, was primarily due to increases in salaries and benefits, and advertising expenses. Salaries and benefit expense increased approximately $1.2 million or 7.5% to $17.3 million in 2002, from $16.0 million in 2001. This was due to new employees being hired during the second half of 2001 for new branches as well as the addition of personnel for specialized areas, such as compliance, internal audit, and legal to accommodate our growth and to assist us in complying with the Consent Order signed with the Office of the Comptroller of the Currency. Advertising and marketing-related expense increased approximately $665,000 or 77.5% to $1.5 million in 2002, from $858,000 in 2001. This was due to television advertisements we launched in 2002 in California as well as New York.

     A breakdown of noninterest expenses by category is reflected below:

			Increase								Increase
	Year		(Decrease)						Year		(Decrease)						Year
	Ended								Ended								Ended
	2003		Amount			%			2002		Amount			%			2001
(Dollars in thousands)
Noninterest Expenses:
Salaries and benefits	$	20,204	$	2,950			17.1	%	$	17,254	$	1,210			7.5	%	$	16,044
Net occupancy		4,793		609			14.6	%		4,184		373			9.8	%		3,811
Furniture and equipment		1,582		52			3.4	%		1,530		240			18.6	%		1,290
Advertising and marketing		1,392		(131	)		-8.6	%		1,523		665			77.5	%		858
Regulatory fees		718		180			33.5	%		538		47			9.6	%		491
Communications		631		51			8.8	%		580		(52	)		-8.2	%		632
Data processing		2,087		388			22.8	%		1,699		184			12.1	%		1,515
Professional fees		2,339		201			9.4	%		2,138		936			77.9	%		1,202
Office supplies		447		88			24.5	%		359		(45	)		-11.1	%		404
Directors’ fees		484		64			15.2	%		420		45			12.0	%		375
Credit related fees		545		(167	)		-23.5	%		712		111			18.5	%		601
Amortization of intangible assets		409		269			192.1	%		140		14			11.1	%		126
Amortization of goodwill		—		—			N/A			—		(74	)		-100.0	%		74
Other		1,539		275			21.8	%		1,264		323			34.3	%		941
Total noninterest expenses:	$	37,305	$	4,964			15.3	%	$	32,341	$	3,977			14.0	%	$	28,364

Provision for Income Taxes

     The provision for income taxes for the year ended December 31, 2003 was $8.9 million as compared to $6.8 million in 2002 and $6.3 million in 2001. The effective tax rate was 38% for 2003 as compared to 37% for 2002 (excluding the impact of the cumulative effect of a change in accounting principle which was not tax effected) and 37% for 2001. The reduction in 2002 was primarily due to a $210,000 tax benefit resulting from a California State tax law change in which one-half of the cumulative loan losses through December 31, 2001 taken for income tax purposes were forgiven. The reduction in 2001 was primarily due to the state income tax benefits related to the acquisition of Korea First Bank of New York.

Financial Condition

     Our total assets were $1,260.0 million at December 31, 2003 as compared to $980.5 million at December 31, 2002 and $679.4 million at December 31, 2001. The increase was $279.5 million or 28.5% for 2003, and $301.1 million or 44.3% for 2002. The increase in total assets from 2002 to 2003 was primarily due to growth in our loan portfolio. Net loans, including loans held for sale, increased $267.7 million 37.1% during 2003. The increase in total assets from 2001 to 2002 was primarily due to growth in our loan and investment portfolio. Net loans increased $219.3 million or 43.7% for 2002 and the investment securities increased $34.9 million or 50.2% in the year. These increases were funded by deposits and FHLB borrowings.

37

Investment Security Portfolio

     The main objectives of our investment strategy are to support a sufficient level of liquidity while providing a means to manage our interest rate risk, and to generate an adequate level of interest income without taking undue risks. Our investment policy permits investment in various types of securities, certificates of deposits and federal funds sold in compliance with various restrictions in the policy. Securities are classified as held-to-maturity or available-for-sale. We do not maintain a trading portfolio. The securities that we have the ability and intent to hold to maturity are classified as held-to-maturity securities. All other securities are classified as available-for-sale.

     As of December 31, 2003, held-to-maturity securities totaled $2.0 million, compared to $2.8 million at December 31, 2002, and available-for-sale securities totaled $126.4 million at December 31, 2003, compared to $101.6 million at December 31, 2002. During 2003, a total of $23.1 million in securities were called, matured or paid down, $21.6 million were sold and $92.4 million were purchased, all classified as available- for- sale. From the investment portfolio, securities with amortized cost of approximately $5.0 million and $3.5 million were pledged to the Federal Reserve Board as required or permitted by law at December 31, 2003 and 2002, respectively. We also pledged $40.2 million with the Federal Home Loan Bank of San Francisco and $50.8 million with the California State Treasurer’s Office. The investment portfolio consists of government sponsored agency bonds, mortgage backed securities, bank qualified California municipals, CMOs and corporate bonds. This investment portfolio composition reflects our investment strategy.

     The following table shows our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.

	Less than 12 months					12 months or longer					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
US government and federal agency	$	11,678,847	$	(60,926	)	$	—	$	—		$	11,678,847	$	(60,926	)
Collateralized mortgage obligations		21,938,631		(530,539	)		—		—			21,938,631		(530,539	)
Mortgage-backed securities		21,274,834		(295,467	)		—		—			21,274,834		(295,467	)
Municipal bonds		4,825,785		(90,153	)		1,154,556		(7,893	)		5,980,341		(98,046	)
U. S. corporate bonds		—		—			—		—			—		—
U. S. government agency preferred stock		9,419,950		(1,439,574	)		—		—			9,419,950		(1,439,574	)
	$	69,138,047	$	(2,416,659	)	$	1,154,556	$	(7,893	)	$	70,292,603	$	(2,424,552	)

     The following table summarizes the maturity of securities based on carrying value and their pertinent weighted average yield ratios at December 31, 2003:

						After One But					After Five But
(Dollars in thousands)	Within One Year					Within Five Years					Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Held-to-maturity
U.S. Corporate Notes	$	—		—		$	2,001		7.01	%	$	—		—	%	$	—		%		$	2,001		7.01	%
Total held-to-maturity		—		—			2,001		7.01			—		—			—		—			2,001		7.01
Available-for-sale
U.S. Government		—		—			14,049		3.56			12,854		4.41			—		—			26,903		3.97
Collateralized Mortgage Obligations		—		—			—		—			3,802		4.05			29,890		4.09			33,692		4.09
Mortgage-backed Securities		—		—			2,226		3.57			1,930		4.01			25,943		3.93			30,099		3.91
Asset-backed Securities		—		—			—		—			—		—			—		—			—		—
Municipal Bonds		—		—			—		—			856		3.78			22,397		4.73			23,253		4.70
U.S. Corporate Notes		513		6.56			533		7.50			—		—			2,000		5.44			3,046		5.99
U.S. Agency Preferred Stocks		—		—			—		—			—		—			9,420		3.96			9,420		3.96
Total available-for-sale		513		6.56			16,808		3.69			19,442		4.27			89,650		4.22			126,413		4.17
Total Investment Securities	$	513		6.56	%	$	18,809		4.04	%	$	19,442		4.27	%	$	89,650		4.22	%	$	128,414		4.21	%

38

Loan Portfolio

     Our net loans (net of allowance for loan losses), including loans held for sale, were $988.8 million at December 31, 2003 as compared to $721.4 million at December 31, 2002 and $502.1 million at December 31, 2001. The increase in net loans was $267.4 million or 37.1% for 2003 and $219.3 million or 43.7% for 2002. The increase in net loans before giving effect to our acquisitions during 2003 was $205.5 million or 28.5% for 2003. Net loans from acquisitions accounted for 23.1% of the increase for 2003. Net loans, as a percentage of our total interest-earnings assets, were 84.9% at December 31, 2003 as compared to 79.8% at December 31, 2002 and 81.6% at December 31, 2001. The average net loans were $828.8 million, $600.1 million, and $447.2 million for the years ended December 31, 2003, 2002, and 2001, respectively. As a result of continued focus on commercial loans and demand for commercial real estate lending activities, loan growth remained concentrated in commercial loans and commercial real estate loans. The table below sets for the composition of our loan portfolio by type.

     The average net loans for 2003 increased $228.8 million or 38.1% from 2002. From the total increase, approximately $33.5 million or 14.6% was contributed by our New York operation. The net loans in the New York region increased $92.4 million or 49.4% to $279.6 million at December 31, 2003, from $187.2 million at December 31, 2002. This increase included $39.5 million in loans purchased from Korea Exchange Bank, Broadway branch (“KEB, Broadway”) in October of 2003. The average net loans for 2002 increased $152.9 million or 34.2% from 2001. From the total increase, approximately $49.3 million or 32.2% was contributed by our New York operation. The net loans in the New York region increased $46.2 million or 32.8% to $187.2 million at December 31, 2002, from $141.0 million at December 31, 2001.

Commercial Loans

     Commercial loans are extended for the purposes of providing working capital, financing the purchase of inventory, especially for importers and exporters, or equipment and for other business purposes. Short-term business loans (within one year) are generally used to finance current transactions and typically provide for periodic interest payments, with principal being payable at maturity. Term loans (usually 5 to 7 years) normally provide for monthly payments of both principal and interest. SBA guaranteed loans usually have a longer maturity (7 to 25 years). The credit-worthiness of the borrower is reviewed on a periodic basis, and most loans are collateralized by inventory, equipment and/or real estate. The commercial loan portfolio also includes SBA loans held for sale. During 2003, our commercial loans increased $45.3 million or 14.2% to $364.2 million, from $318.9 million at December 31, 2002. Commercial loans also increased $107.7 million or 51.0% during 2002, from $211.2 million at December 31, 2001.

Commercial Real estate Loans

     Our real estate loans consist primarily of loans secured by deeds of trust on commercial property. It is our policy to restrict real estate loans to 70% of the appraised value of the property. We offer both fixed and floating rate loans. The maturities on such loans are generally restricted to seven years (on an amortization up to 25 years with a balloon payment due at maturity). Our real estate loans, mostly consisting of commercial real estate loans, increased $220.1 million or 61.9% to $575.9 million at December 31, 2002, from $355.8 million at December 31, 2002. Real estate loans also increased $104.1 million or 41.4% during 2002, from $251.7 million at December 31, 2001.

39

Consumer Loans

     Most of our consumer loan portfolio consists of automobile loans, home equity lines and loans, and savings-secured loans. Nara Bank began originating automobile loans in 1995. Referrals from automobile dealers comprise the majority of our origination of such loans. We also offer fixed-rate loans to buyers of new and previously owned automobiles who are not qualified for automobile dealers’ most preferential loan rates. We carry all loans at face amount, less payments collected, net of deferred loan origination fees and the allowance for loan losses. Interest on all loans is accrued daily on a simple interest basis. Once a loan is placed on non-accrual status, accrual of interest is discontinued and previously accrued interest is reversed. Loans are placed on a non-accrual basis when principal and interest on a loan is past due 90 days or more, unless a loan is both well-secured and in process of collection.

     The rates of interest charged on variable rate loans are set at specified increments in relation to our prime lending rate and accordingly vary as our prime lending rate varies. Approximately 91.4% of our net loans were variable-rate loans at December 31, 2003.

     With certain exceptions, we are permitted, under applicable law, to make unsecured loans to individual borrowers in aggregate amounts of up to 15% of the sum of our total capital and the allowance for loan losses (as defined for regulatory purposes). As of December 31, 2003, our lending limit was approximately $16.9 million for unsecured loans. For the purpose of lending limits, a secured loan is defined as a loan secured by readily marketable collateral having a current market value of at least 100% of the amount of the loan or extension of credit at all times. In addition to unsecured loans, we are permitted to make collateral-secured loans in an additional amount up to 10% of our total capital and the allowance for loan losses.

     The following table shows the composition of our loan portfolio by type of loan on the dates indicated:

	December 31,
(Dollars in thousands)	2003						2002						2001						2000						1999
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
Loan Portfolio Composition:
Commercial loans, including lease financing*	$	364,175			36.3	%	$	318,905			43.6	%	$	211,214			41.5	%	$	139,544			38.5	%	$	100,411			42.0	%
Real estate and construction loans		575,930			57.4	%		355,787			48.7	%		251,691			49.4	%		177,849			49.0	%		103,311			43.2	%
Consumer loans		63,324			6.3	%		56,449			7.7	%		46,596			9.1	%		45,488			12.5	%		35,295			14.8	%
Total loans Outstanding		1,003,429			100.0	%		731,141			100.0	%		509,501			100.0	%		362,881			100.0	%		239,017			100.0	%
Deferred loans (Fees), net of costs		(2,164	)					(1,326	)					(650	)					(177	)					(86	)
Less: Allowance of loan losses		(12,471	)					(8,458	)					(6,710	)					(6,980	)					(3,452	)
Net Loans Receivable	$	988,794					$	721,357					$	502,141					$	355,724					$	235,479

* Includes commercial loans held for sale; $3,926,885 in 2003, $6,337,519 in 2002, $3,657,842 in 2001, and $168,250 in 1999

     We extend lines of credit to business customers usually on an annual review basis. We do not normally make loan commitments in material amounts for periods in excess of one year. Our undisbursed commercial loan commitments at December 31, 2003, 2002, and 2001 were $173.5 million, $114.7 million, and $146.2 million, respectively.

     The following table shows our loan commitments and letters of credit outstanding at the dates indicated:

	December 31,
(Dollars in thousands)	2003		2002		2001		2000		1999
Loan commitments	$	173,547	$	114,734	$	146,201	$	87,895	$	56,278
Standby letters of credit		14,491		4,830		4,785		4,574		2,851
Commercial letters of credit		31,314		26,952		21,634		21,427		17,554

40

Non-performing Assets

     Non-performing assets consisted of non-accrual loans, 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”).

     Loans are placed on nonaccrual status when they become 90 days past due, unless the loan is both well- secured and in the process of collection. Loans may be placed on nonaccrual status earlier if, in management’s opinion, the full and timely collection of principal or interest becomes uncertain. When a loan is placed on nonaccrual status, unpaid accrued interest is charged against interest income. Loans are charged off when our management determines that collection has become unlikely. OREO consists of real estate acquired by us through foreclosure or similar means that we intend to offer for sale.

     Non-performing assets were $5.6 million at December 31, 2003 as compared to $2.2 million at December 31, 2002 and $1.8 million at December 31, 2001. The increase in non-performing assets in 2003, as compared to 2002, was primarily due to increase in non-accrual loans, which is discussed in the paragraph below. The increase in total non-performing assets in 2002, as compared to 2001, was primarily due to $1.1 million of restructured loans. During 2002, five loans totaling $ 1.1 million were restructured, which are all current at December 31, 2002.

     Non-performing loans were $5.1 million at December 31, 2003 as compared to $1.1 million at December 31, 2002 and $1.8 million at December 31, 2001. The increase of $3.8 million or 345.4% in 2003 as compared to 2002 was primarily due to three loans totaling $2.7 million that are fully secured and reserved, and approximately $900,000 in various loans from Asiana Bank we acquired during 2003 of which 50% is fully secured by real estate and other assets. The decrease of $700,000 or 35.3% in 2002 as compared to 2001 was primarily due to restructured and charged-off loans.

     The following table illustrates the composition of our nonperforming assets as of the dates indicated

	December 31,
(Dollars in thousands)	2003		2002		2001		2000		1999
Non-accrual loans	$	4,855	$	1,064	$	1,720	$	2,038	$	1,523
Loans past due 90 days or more, still accruing		209		18		36		—		—
Total non-performing loans		5,064		1,082		1,756		2,038		1,523
Other real estate owed		—		36		—		263		44
Restructured loans		529		1,067		—		—		—
Total non-performing assets	$	5,593	$	2,185	$	1,756	$	2,301	$	1,567

     We did not own any other real estate at December 31, 2003 and 2001. We owned other real estate, taken through foreclosure, in an aggregate amount of $36,000 at December 31, 2002. We incurred $604 and $10,897 in expenses in 2003 and 2002, respectively related to these properties. There was no expense incurred through OREO transactions in 2001. No provision was made during 2003 and 2001. At December 31, 2002, we reserved $7,618 as a valuation allowance. The following table summarizes our OREO at the dates indicated:

	December 31,
(Dollars in thousands)	2003			2002			2001			2000			1999
Other real estate owned	$	0		$	44		$	0		$	300		$	57
Valuation allowance		(0	)		(8	)		(0	)		(37	)		(13	)
Net OREO	$	0		$	36		$	0		$	263		$	44

41

     Maturity of Loans and Sensitivity of Loans to Changes in Interest Rates

     The following table shows the maturity distribution and repricing interval of the loans outstanding as of December 31, 2003. In additional, the table shows the distribution of such loans between those with variable or floating interest rates and those with fixed or predetermined interest rates.

	December 31, 2002
(Dollars in thousands)	Loans maturing and repricing in
			After one
	Within		But within		After
	One Year		Five years		Five years		Total
Commercial Loans	$	354,293	$	7,584	$	2,298	$	364,175
Real Estate and Construction loans		494,563		14,982		66,385		575,930
Consumer Loans		20,409		42,801		114		63,324
Total		869,265		65,367		68,797		1,003,429
Loans with fixed interest rates		31,991		24,727		29,063		85,781
Loans with variable interest rate		917,648		—		—		917,648
Total	$	949,639	$	24,727	$	29,063	$	1,003,429

     Concentrations

     Loan concentrations are considered to exist when there are significant amounts of loans to a multiple number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. The following table describes the industry concentrations in our loan portfolio as of the dates indicated:

	At December 31,
(dollars in thousands)	2003						2002						2001					2000					1999
	Amount			% of Portfolio			Amount			% of Portfolio			Amount		% of Portfolio			Amount		% of Portfolio			Amount		% of Portfolio
Manufacturing	$	73,675			7.4	%	$	48,245			6.6	%	$	38,665		7.6	%	$	36,142		10.0	%	$	30,072		12.6	%
Wholesale Trade		174,195			17.4	%		127,659			17.5	%		109,112		21.4	%		89,609		24.7	%		71,283		29.8	%
Retail Trade		158,821			15.9	%		126,988			17.4	%		85,515		16.8	%		61,282		16.9	%		35,878		15.0	%
Services		198,940			19.9	%		138,203			18.9	%		104,669		20.6	%		63,792		17.6	%		25,702		10.8	%
Finance, Insurance, Property Management		355,557	%		35.5	%		248,417	%		34.0	%		129,495		25.4	%		75,567		20.8	%		48,453		20.3	%
Total		961,188						689,512						467,456					326,392					211,388
Gross Loans, net of unearned *	$	1,001,265					$	729,815					$	508,850				$	362,704				$	238,931

* Includes loans held for sale: $3,926,885 in 2003, $6,337,519 in 2002, $3,657,842 in 2001, and $168,250 in 1999

42

     Allowance for Loan Losses

     The risk of nonpayment on loans is inherent in all commercial banking operations. We employ a concept of total quality loan management in order to minimize our credit risk. For new loans, we thoroughly analyze each loan application and a majority of those loans are approved by the Management Loan Committee (“MLC”), which is comprised of the Chief Executive Officer, Chief Operating Officer, Chief Credit Officer and Senior Loan Administrator and any other credit administrators as designate by the MLC. For existing loans, we maintain a systematic loan review program, which includes a quarterly loan review by the internal loan review officer and a semi-annual loan review by external loan consultants. Based on the reviews, loans are graded for their overall quality, which is measured based on the sufficiency of credit and collateral documentation; proper lien perfection; proper approval by loan committee(s); adherence to any loan agreement covenants; compliance with internal policies and procedures and laws and regulations; sources of repayment; and liquidation value of the collateral and other sources of repayment. We closely monitor loans that management has determined require further supervision because of the loan size, loan structure, and/or complexity of the borrower. These loans are periodically reviewed by the Management Loan Committee.

     When principal or interest on a loan is past due 90 days or more, a loan is normally placed on non-accrual status unless it is considered to be both well-secured and in the process of collection. Further, a loan is considered to be a loss in whole or in part when (1) its loss exposure beyond any collateral value is apparent, (2) servicing of the unsecured portion has been discontinued or (3) collection is not anticipated due to the borrower’s financial condition and general economic conditions in the borrower’s industry. Any loan, or portion of a loan, judged by management to be uncollectible is charged against the allowance for loan losses, while any recoveries are credited to such allowance.

     Our allowance for loan losses is established to provide for loan losses that can be reasonably anticipated. The allowance for loan losses is established through charges to operating expenses in the form of provisions for loan losses. Actual loan losses or recoveries are charged or credited, respectively, directly to the allowance for loan losses. The amount of the allowance is determined by management and reported to the Board quarterly. The results of both internal and external loan reviews are used to determine the loan loss reserve. Our current loan review system takes into consideration such factors as the current financial condition of the borrower, the value of security, future economic conditions and their impacts on various industries. Our own historical loan loss experience is factored into a detailed loss migration analysis method, which determines loss factors to be used in calculating the allowance for loan losses.

     The allowance for loan losses was $12.5 million at December 31, 2003 as compared to $8.5 million at December 31, 2002 and $6.7 million at December 31, 2001. The allowance for loans losses increased $4.0 million or 47.1% at December 31, 2003, as compared to December 31, 2002, primarily due to an increase in the size of our loan portfolio and an increase in classified loans. We recorded a provision for loan losses of $5.4 million in 2003, compared to $2.7 million in 2002 and $750,000 in 2001. During 2003, we charged off $2.4 million and recovered $510,000. The allowance for loan losses was 1.25% of gross loans at December 31, 2003, as compared to $1.16% at December 31, 2002 and 1.32% at December 31, 2001. Total classified loans at December 31, 2003 were $10.9 million, compared to $2.5 million at December 31, 2002.

     Specific reserves for impaired loans in accordance with SFAS No. 114, were $1.6 million at December 31, 2003 as compared to $1.3 million at December 31, 2002 and $1.4 million at December 31, 2001. Our management and Board of Directors review the adequacy of the allowance for loan losses at least quarterly. Based upon these evaluations and internal and external reviews of the overall quality of our loan portfolio, management and the Board of Directors believe that the allowance for loan losses was adequate as of December 31, 2003, to absorb estimated losses associated with the loan portfolio. However, no assurances can be given as to whether we will experience further losses in excess of the allowance, which may require additional provisions for loan loss reserves. If there are further losses, they may have a negative impact on our earnings.

43

     The following table shows the provision made for loan losses, the amount of loans charged off, the recoveries on loans previously charged off together with the balance in the allowance for possible loan losses at the beginning and end of each period, the amount of average and total loans outstanding, and other pertinent ratios as of the dates and for the periods indicated:

(Dollars in thousands)	December 31,
	2003			2002			2001			2000			1999
LOANS:
Average gross loans	$	839,098		$	607,056		$	454,591		$	315,735		$	208,895
Total gross loans at end of period (net of deferred fees)		1,001,265			729,815			508,850			362,704			238,931
ALLOWANCE:
Balance — beginning of period	$	8,458		$	6,710		$	6,980		$	3,452		$	2,834
Loans charged off:
Commercial		1,756			2,118			3,463			6,300			2,785
Consumer		630			296			233			225			154
Real Estate and Construction		30			—			83			52			—
Total loans charged off		2,416			2,414			3,779			6,577			2,939
Less: recoveries:
Commercial		386			1,278			1,737			2,292			151
Consumer		52			79			182			173			76
Real Estate and Construction		72			15			376			1,571			—
Total loan recoveries		510			1,372			2,295			4,036			227
Net loans charged off		1,906			1,042			1,484			2,541			2,712
Provision for (recapture of) loan losses		5,385			2,686			750			(1,100	)		3,395
Allowance acquired in business acquisition		669			—			—			7,878			—
Less: provision for (recapture of) losses on commitments and letters of credit		(135	)		104			464			(709	)		(65	)
Balance — end of period	$	12,471		$	8,458		$	6,710		$	6,980		$	3,452
RATIOS:
Net loan charge-offs to average total loans		0.23	%		0.17	%		0.33	%		0.80	%		1.30	%
Net loan charge-offs to total loans at end of period		0.19	%		0.14	%		0.29	%		0.70	%		1.14	%
Allowance for loan losses to average total loans		1.49	%		1.39	%		1.48	%		2.21	%		1.65	%
Allowance for loan losses to total loans at end of period		1.25	%		1.16	%		1.32	%		1.92	%		1.44	%
Net loan charge-offs to beginning allowance		22.53	%		15.53	%		21.26	%		73.61	%		95.70	%
Net loan charge-offs to provision for loan losses		35.39	%		38.79	%		197.87	%		-231.00	%		79.88	%

     The reserve for losses on commitments to extend credit and letters of credit is primarily related to undisbursed funds on lines of credit. We evaluate credit risk associated with the loan portfolio at the same time we evaluate credit risk associated with the commitments to extend credit and letters of credits. However, the allowances necessary for the commitments is reported separately in other liabilities in the accompanying consolidated statements of financial conditions, and not as part of the allowance for loan losses, as presented above. The reserve for losses on commitments to extend credit and letters of credit was $468,000 and $333,000 at December 31, 2003 and 2002, respectively.

  Allowance For Loan Losses Methodology

     We maintain an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on our regular, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which includes the formula allowance and specific allowances for identified problem loans.

     The Migration Analysis is a formula method based on our actual historical net charge-off experience for each loan type pools and undisbursed commitments graded Pass (less cash secured loans), Special Mention, Substandard, and Doubtful.

     Central to the migration analysis is our credit risk rating system. Both internal, contracted external, and regulatory credit reviews are used to determine and validate loan risk grades. Our credit review system takes into consideration factors such as: borrower’s background and experience; historical and current financial condition; credit history and payment performance; industry and the economy; type, market value, volatility of the market value of collateral, and our lien position; and the financial strength of the guarantors

     To calculate our various loan factors, we use an eight-quarter rolling average of historical losses detailing charge-offs, recoveries, and loan type pool balances to determine the estimated credit losses for non-classified and

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classified loans. Also, in order to reflect the impact of recent events, the eight-quarter rolling average has been weighted. The most recent four quarters have been assigned a 60% weighted average and the older four quarters have been assigned a 40% weighted average.

     The resulting migration risk factors, or our established minimum risk factor for loan type pools that have no historical loss, whichever is greater, for each loan type pool is used to calculate our General Reserve. We have established a minimum risk factor for each loan grade Pass (0.40% — 1.00%), Special Mention (3.0%), Substandard (10.0% — 15.0%), Doubtful (50.0%), and Loss (100.0%).

     Our parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for three positive/decrease (Major, Moderate, and Minor), three negative/increase (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no impact (neutral) to our migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, we make the changes in accordance with the established parameters supported by narrative and/or statistical analysis. Our Credit Risk Matrix and the seven possible scenarios enable us to adjust the Migration Analysis as much as 50 basis points in either direction (positive or negative) for each loan type pool.

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

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

• Changes in the nature and volume of the loan portfolio.

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

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

• Changes in the quality of our loan review system and the degree of oversight by the Directors.

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

• Transfer risk on cross-border lending activities.

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

     Under the Specific Allocation method, management establishes specific allowances for loans where management has identified significant conditions or circumstances related to a credit that are believed to indicate the probability that a loss may be incurred. The specific allowance amount is determined by a method prescribed by the Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan. Our actual historical repayment experience and the borrower’s cash flow, together with an individual analysis of the collateral held on a loan, is taken into account in determining the allocated portion of the required Allowance under this method. As estimations and assumptions change, based on the most recent information available for a credit, the amount of the required specific allowance for a credit will increase or decrease.

     Executive management reviews these conditions quarterly in discussion with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such conditions may be reflected as a specific allowance, applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss related to such condition is reflected in the unallocated allowance.

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Deposits

     Deposits are our primary source of funds to use in lending and investment activities. Our deposits consist of demand deposits, savings deposits, money market, Super-Now and time deposits with various maturities. Total deposits were $1,061.4 million at December 31, 2003 as compared to $816.9 million at December 31, 2002 and $589.8 million at December 31, 2001. The increases were $244.5 million or 29.9% for 2003 and $227.1 million or 38.5% for 2002. On August 15, 2003, we acquired Asiana Bank with $29.3 million in deposits, which accounted for 12.0 % of the total increase in deposits. On October 31, 2003, we assumed $46.2 million in deposits from KEB, Broadway, which accounted for 20.0% of the total increase in deposits. Excluding these transactions, the internal deposit growth amounted to $169.0 million or 20.7% in 2003.

     The increase in deposits during 2003 comprised of increases in non-interest bearing deposits of $88.7 million or 37.4%, time deposits of $89.3 million or 25.2%, savings of $16.2 million or 11.5%, and interest-bearing demand of $ 50.3 million or 59.9%. Excluding acquisitions, the increases due to internal growth were as follows: non-interest bearing deposits increased $69.9 million or 29.5%, time deposits increased $51.6 million or 14.5%, savings increased $8.2 million or 5.8%, and interest-bearing demand deposits increased $39.3 million or 46.9%. These increases were primarily due to new deposits accounts from existing branches as well as newly opened branches in 2003. Total deposits in the New York region increased $64.0 million or 24.7% to $ 322.8 million at December 31, 2003, compared to $258.8 million at December 31, 2002. The increase included deposits of $46.2 million from KEB, Broadway mentioned above. Total deposits in Northern California increased $48.7 million or 61.4% to $128.0 million at December 31, 2003, compared to $79.3 million at December 31, 2002. This increase included deposits of $29.3 from Asiana Bank acquisition.

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Included in time deposits of $444.1 million at December 31, 2003 are $57.2 million of brokered deposits and $50 million of State deposits, compared with $45.3 million of brokered deposits and $35.0 million of State deposits at December 31, 2002. Although we occasionally promote certain time deposit products, our efforts are largely concentrated in increasing the volume of low-cost transaction accounts, which generate higher fee income and are a less costly source of funds in comparison to time deposits. Detail of those deposits is shown on the table below.

Brokered Deposits	Issue Date		Maturity Date		Rate
$2,090,000		02/16/2001		02/16/2006		5.65	%
14,931,000		07/16/2003		01/16/2004		1.25	%
5,063,000		08/06/2003		08/06/2004		1.35	%
5,000,000		08/29/2003		02/27/2004		1.15	%
5,233,000		08/29/2003		05/28/2004		1.35	%
5,000,000		08/29/2003		08/27/2004		1.45	%
5,325,000		10/24/2003		07/26/2004		1.20	%
14,540,000		10/29/2003		04/29/2004		1.10	%
$57,182,000						1.39	%

State Deposits	Issue Date		Maturity Date		Rate
$10,000,000		08/08/2003		02/04/2004		1.08	%
10,000,000		09/11/2003		03/12/2004		1.08	%
5,000,000		10/08/2003		01/17/2004		0.98	%
10,000,000		10/23/2003		01/23/2004		0.99	%
10,000,000		10/23/2003		04/22/2004		1.08	%
5,000,000		11/14/2003		05/13/2004		1.11	%
$50,000,000						1.06	%

     Total deposits were $816.9 million at December 31, 2002 as compared to $589.8 million at December 31, 2001 and $527.7 million at December 31, 2000. The increases were $227.1 million or 38.5% for 2002 and $62.1 million or 11.8% for 2001. On November 29, 2002, we assumed $49.6 million in deposits and $1.3 million in loans from The Industrial Bank of Korea, New York (“IBKNY”), which accounted for 21.8% of the total increase in deposits. Excluding this transaction, the internal deposit growth amounted to $177.5 million or 30.1% in 2002.

     The increase in deposits during 2002 comprised of increases in non-interest bearing deposits of $37.8 million or 19.0%, time deposits of $127.1 million or 55.8%, and savings of $62.4 million or 79.1%, offset by a slight decrease in interest-bearing demand accounts of $ 0.2 million or 0.2%. The increases are attributed to continued momentum from various promotions intended to attract deposits. Total deposits in the New York region increased $93.2 million or 56.3% to $ 258.8 million at December 31, 2002, compared to $165.6 million at December 31, 2001. Total deposits in Northern California increased $13.9 million or 21.3% to $79.3 million at December 31, 2002, compared to $65.4 million at December 31, 2001.

     Although our deposits vary with local and national economic conditions, we do not believe that our deposits are seasonal in nature. The following table sets forth information for the periods indicated regarding the balances of our deposits by category.

	December 31,
	2003					2002					2001
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Demand, noninterest bearing.	$	325,647		30.7	%	$	236,923		29.0	%	$	199,083		33.8	%
Demand, interest bearing		134,125		12.6	%		83,868		10.3	%		84,103		14.3	%
Savings		157,503		14.8	%		141,282		17.3	%		78,933		13.3	%
Time certificates of deposit		444,140		41.8	%		354,845		43.4	%		227,725		38.6	%
Total Deposits	$	1,061,415		100.0	%	$	816,918		100.0	%	$	589,844		100.0	%

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     The following table shows the maturity schedules of our certificates of deposit, for the years indicated.

	December 31,
	2003					2002					2001
	Amount		Percentage			Amount		Percentage			Amount		Percentage
	(Dollars in thousands)
Three months or less	$	195,444		44.0	%	$	139,895		39.4	%	$	120,543		52.9	%
Over three months through six months.		144,635		32.6	%		119,471		33.7	%		61,747		27.1	%
Over six months through twelve months		99,031		22.3	%		90,989		25.6	%		38,966		17.1	%
Over twelve months		5,030		1.1	%		4,490		1.3	%		6,469		2.9	%
Total time certificate of deposits	$	444,140		100.0	%	$	354,845		100.0	%	$	227,725		100.0	%

Other Borrowings

     On September 30, 1999, we issued five-year subordinated capital notes in the aggregate amount of $4.3 million with a stated interest rate of 9.0%, maturing on September 30, 2004. Interest on the notes is payable quarterly and no scheduled payments of principal were due prior to maturity. The notes were redeemable prior to their maturity as of or after September 30, 2002. The notes qualified as Tier 2 risk-based capital under Comptroller of the Currency guidelines for assessing regulatory capital. For the total risk-based capital ratio, the amount of notes that qualify as capital is reduced as those notes approach maturity. On September 30, 2002, we repaid the entire principal and the accrued interest to the note holders according to the note agreement.

     During 2000, we established a borrowing line with the FHLB of San Francisco. Advances may be obtained from the FHLB of San Francisco to supplement our supply of lendable funds. Advances from the FHLB of San Francisco typically are secured by pledges of mortgage loans and/or securities, with a market value at least equal to outstanding advances. The following table shows our outstanding borrowings from FHLB at December 31, 2003.

FHLB Advances	Issue Date		Maturity Date		Rate
$5,000,000		10/19/2000		10/19/2007		6.70	%
5,000,000		02/04/2002		02/04/2004		3.39	%
5,000,000		04/26/2002		03/31/2004		3.53	%
35,000,000		03/07/2003		03/08/2004		1.18	%
5,000,000		05/05/2003		03/31/2005		1.72	%
5,000,000		11/07/2003		02/09/2004		1.13	%
$60,000,000						2.06	%

     At December 31, 2003, five wholly-owned subsidiary grantor trusts established by Nara Bancorp had issued $38 million of pooled Trust Preferred Securities (“trust preferred securities”). Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the “Debentures”) of Nara Bancorp. The Debentures are the sole assets of the trusts. Nara Bancorp’s obligations under the Junior Subordinated Debentures and related documents, taken together, constitute a full and unconditional guarantee by Nara Bancorp of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. Nara Bancorp has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.

     With the adoption of FIN No. 46, Bancorp deconsolidated the five grantor trusts as of December 31, 2003. As a result, the junior subordinated debentures issued by Bancorp to the grantor trusts, totaling $39.3 million, are reflected in our consolidated balance sheet in the liabilities section at December 31, 2003, under the caption as “junior subordinated debentures.” We record interest expense on the corresponding junior subordinated debentures in the consolidated statements of income. The Company also recorded $2.0 million in other assets in the consolidated statement of financial condition at December 31, 2003 for the common capital securities issued by the issuer trusts

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(Dollars in thousands)

TRUST NAME	ISSUANCE DATE	AMOUNT		PRINCIPAL BALANCE OF DEBENTURES		STATED MATURITY	ANNUALIZED COUPON RATE	INTEREST DISTRIBUTION DATES
Nara Bancorp Capital Trust I	March 2001	$	10,000	$	10,400	June 8, 2031	10.18%	June 8 and December 8
Nara Statutory Trust II	March 2002	$	8,000	$	8,248	March 26, 2032	3 month LIBOR + 3.6%	March 26, June 26, September 26 and December 26
Nara Capital Trust III	June 2003	$	5,000	$	5,155	June 15, 2033	3 month LIBOR + 3.15%	March 15, June 15, September 15, and December 15
Nara Statutory Trust IV	December 2003	$	5,000	$	5,155	January 7, 2034	3 month LIBOR + 2.85%	January 7, April 7, July 7, and October 7
Nara Statutory Trust V	December 2003	$	10,000	$	10,310	December 17, 2033	3 month LIBOR + 2.95%	March 17, June 17, September 17, and December 17

     The Junior Subordinated Debentures are not redeemable prior to June 8, 2011 with respect to Nara Bancorp Capital Trust I, March 26, 2007 with respect to Nara Statutory Trust II, June 15, 2008 with respect to Nara Capital Trust III, January 7, 2009 with respect to Nara Statutory Trust IV, and December 17, 2008 with respect to Nara Statutory Trust V unless certain events have occurred. During November of 2002, $10 million of the total proceeds from the issuance of the Trust Securities were injected into Nara Bank, as permanent capital.

Capital Resources

     Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, we conduct ongoing assessments of projected sources and uses of capital in conjunction with projected increases in assets and level of risk. We have considered, and we will continue to consider, additional sources of capital as the need arises, whether through the issuance of additional securities, debt or otherwise.

     Our total stockholders’ equity was $85.0 million at December 31, 2003 as compared to $65.4 million at December 31, 2002 and $55.4 million at December 31, 2001. This was an increase of $19.6 million or 30.0% for 2003 and $10.0 million or 18.1% for 2002. At December 31, 2003, Tier I Capital, stockholders’ equity less intangible assets, plus proceeds from the Trust Preferred, was $106.6 million, as compared to $77.9 million at December 31, 2002. This increase was due to an issuance of $8.0 million in common stock to Asiana Bank’s stockholders, an issuance of $1.8 million in common stock through exercised options, an additional $11.0 million Trust Preferred that qualified as Tier I Capital and net income of $14.3 million offset by cash dividend of $2.2 million and additional intangibles of $4.4 million. At December 31, 2003, Nara Bancorp had a ratio of total capital to total risk-weighted assets of 11.8% and a ratio of Tier I Capital to total risk weighted assets of 9.8%. The Tier 1 leverage ratio was 8.8% at December 31, 2003. Nara Bank had a ratio of total capital to total risk-weighted assets of 10.4%, a ratio of a Tier 1 Capital to total risk weighted assets of 9.2%, and Tier 1 leverage ratio was 8.3% at December 31, 2003.

     At December 31, 2002, Tier I Capital, stockholders’ equity less intangible assets, plus proceeds from the Trust Preferred, was $77.9 million. This increase was due to an additional $8.0 million Trust Preferred and net income of $15.5 million offset by stock repurchases of $6.4 million and cash dividend of $2.2 million during the year. At December 31, 2002, Nara Bancorp had a ratio of total capital to total risk-weighted assets of 10.7% and a ratio of Tier 1 Capital to total risk weighted assets of 9.6%. The Tier 1 leverage ratio was 8.7% at December 31, 2002. Nara Bank had a ratio of total capital to total risk-weighted assets of 11.1%, a ratio of Tier 1 Capital to total risk weighted assets of 10.0%, and Tier 1 leverage ratio was 9.3% at December 31, 2002.

     The following table presents the amounts of regulatory capital and the capital ratios for Nara Bancorp and Nara Bank, compared to their minimum regulatory capital requirements as of December 31, 2003.

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	As of December 31, 2003 (Dollars in thousands)
Nara Bancorp	Actual					Required					Excess
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 capital to average assets	$	106,632		8.8	%	$	48,255		4.0	%	$	58,377		4.8	%
Tier 1 risk-based capital ratio.	$	106,632		9.8	%	$	43,414		4.0	%	$	63,218		5.8	%
Total risk-based capital ratio	$	127,907		11.8	%	$	86,829		8.0	%	$	41,078		3.8	%

	As of December 31, 2003 (Dollars in thousands)
Nara Bank	Actual					Required					Excess
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I capital to average assets	$	100,167		8.3	%	$	48,256		4.0	%	$	51,911		4.3	%
Tier 1 risk-based capital ratio.	$	100,167		9.2	%	$	43,365		4.0	%	$	56,802		5.2	%
Total risk-based capital ratio	$	112,638		10.4	%	$	86,730		8.0	%	$	26,908		2.4	%

     Liquidity Management

     Liquidity risk is the risk to earnings or capital resulting from our inability to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the ability to manage unplanned decreases or changes in funding sources and to recognize or address changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are stability of the deposit base; marketability, maturity, and pledging of investments; and the demand for credit.

     The objective of our liquidity management is to have funds available to pay anticipated deposit withdrawals and any other maturing financial obligations promptly and fully in accordance with their terms. Liquidity management involves our ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive cost.

     In general, liquidity risk is managed daily by controlling the level of federal funds and the use of funds provided by the cash flow from the investment portfolio. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve Bank. The sale of investment bonds maturing in the near future can also serve as a contingent source of funds. Increases in deposit rates are considered a last resort as a means of raising funds to increase liquidity.

     Our primary source of liquidity are derived from financing activities which include the customer deposits, brokered deposits, federal funds facilities, and advances from the Federal Home Loan Bank of San Francisco. Primary uses of funds include origination of loans, purchase of investment securities, and payment of operating expenses.

     Net cash outflow from operating activities totaled $10.5 million and $17.4 million during 2003 and 2002, respectively. Net cash outflow from operating activities for both periods can be attributed primarily to the origination of loans held for sale offset by the net income earned during the year and proceeds from the sale of loans held for sales. Moreover, increase in other assets also contributed to operating cash outflows in 2003 and 2002, respectively. Net cash inflow from operating activities totaled $16.3 million during 2001. Net cash inflow operating activities for the year can be attributed to the net income earned during the year.

     Net cash outflows from investing activities totaled $254.0 million, $233.8 million, and $148.2 million during 2003, 2002 and 2001, respectively. Net cash outflows from investing activities for those periods can be attributed primarily to the growth in our loan portfolio and purchase of securities. These activities were partially offset by repayment and net sales proceeds from investment securities available-for-sale and other investments.

     Net cash inflows from financing activities totaled $230.3 million, $283.3 million and $71.9 million during 2003, 2002 and 2001, respectively. Net cash inflows from financing activities for both periods were attributed primarily to the growth in deposits, and net proceeds from Junior Subordinated Debenture. Moreover, issuance of common stock to Asiana shareholders and the proceeds from Federal Home Loan Bank borrowings also contributed

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to financing cash inflows in 2003 and 2002, respectively. Net cash inflows from financing activities were partially offset by the cash dividends, stock repurchase and the retirement of subordinated notes for 2002.

     At times when we have more funds than the amount we need for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. On the other hand, when we have less funds than we need, we are allowed to borrow funds from both correspondent banks and the Federal Reserve Bank (“FRB”). The maximum borrowing amount from our correspondent banks is $13 million on an overnight basis. In addition to the correspondent banks, the maximum borrowing amount from the FRB discount window is 97% of the market value of the pledged security. At December 31, 2003, the par value of the pledged security was $5.0 million. We also have an available borrowing line with the Federal Home Loan Bank of San Francisco of up to 25% of our total assets. At December 31, 2003 and 2002, we had $60.0 million and $65.0 million of advances outstanding from Federal Home Loan Bank, respectively.

     We maintain a portion of our funds in interest-bearing cash deposits with other banks, sell funds to other banks overnight (federal funds sold), and investment securities available-for-sale. The liquid assets were $107.9 million at December 31, 2003 as compared to $138.0 million at December 31, 2002 and $124.1 million at December 31, 2001. At December 31, 2002, our liquid assets included cash and cash equivalents, federal funds sold, interest-bearing deposits in other banks with maturities of one year or less, and available-for-sale investment securities not pledged. At December 31, 2003, cash and cash equivalents, including federal funds sold, totaled $ 76.4 million as compared to $104.7 million at December 31, 2002 and $72.6 million at December 31, 2001.

     Because our primary sources and uses of funds are loans and deposits, the relationship between gross loans and total deposits provides a useful measure of our liquidity. Typically, the closer the ratio of loans to deposits is to 100%, the more we rely on our loan portfolio to provide for short-term liquidity needs. Because repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan to deposit ratio, the less liquid are our assets. For 2003, our gross loan to deposit ratio averaged 93.7%, compared to an average ratio of 93.4% for 2002 and a ratio of 82.6% for 2001. As of December 31, 2003, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

     Off-Balance Sheet Activities And Contractual Obligations

     Nara Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the consolidated financial statements. These activities are part of our normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate swap contracts, operating leases and long-term debt.

     Traditional off-balance sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities could require us to make cash payments to third parties in the event certain specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance sheet activities. However, since certain off-balance sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements. These activities are necessary to meet the financing needs of our customers.

     Nara Bank also enters into interest rate swap contracts where we are required to either receive cash from or pay cash to counter parties depending on changes in interest rates. We utilize interest rate swap contracts to help manage the risk of changing interest rates. Our accounting for interest rate swap contracts is discussed below under Item 7A.

     We do not anticipate that our current off-balance sheet activities will have a material impact on future results of operations and financial condition. Further information regarding our financial instruments with off-balance sheet risk can be found in Note 13 of the Notes to the Consolidated Financial Statements and Item 7A — “Quantitative and Qualitative Disclosures of Market Risks”.

     We continue to lease our banking facilities and equipment under non-cancelable operating leases with terms providing for fixed monthly payments over periods ranging from 2 to 30 years. Our facility lease obligations are discussed under Item 2 — “Properties”.

The following table shows our contractual obligation as of December 31, 2003.

	Payment due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		Over 5 years
Time Deposits	$	444,140	$	439,212	$	3,978	$	915	$	35
Junior Subordinated Debenture		39,268,000		—		—		—		39,268,000
Federal Home Loan Bank borrowings		60,000,000		50,000,000		5,000,000		5,000,000		—
Operating Lease Obligations		34,448,940		3,666,490		7,625,957		6,178,748		16,977,745
Total	$	133,716,940	$	53,666,490	$	12,625,957	$	11,178,748	$	56,245,745

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS

     The objective of our asset and liability management activities is to improve our earnings by adjusting the type and mix of assets and liabilities to effectively address changing condition and risks. Through overall management of our balance sheet and by controlling various risks, we seek to optimize our financial returns within safe and sound parameters. Our operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of asset and liabilities and emphasizing growth in retail deposits, as a percentage of interest-bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling noninterest expense, and enhancing noninterest income. We also use risk management instruments to modify interest rate characteristic of certain assets and liabilities to hedge against our exposure to interest rate fluctuations, reducing the effects these fluctuations might have on associated cash flows or values. Finally, we perform internal analyses to measure, evaluate and monitor risk.

     Interest Rate Risk

     Interest rate risk is the most significant market risk impacting us. Market risk is the risk of loss to future earnings, to fair values, or to future cash flow that may result from changes in the price of a financial instrument. Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volume. A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows and values and market interest rate movements. The management of interest risk is governed by policies reviewed and approved annually by the Board of Directors. Our Board delegates responsibility for interest risk management to the Asset and Liability Management Committee (“ALCO”), which is composed of Nara Bank’s senior executives and other designated officers.

     The fundamental objective of the ALCO is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The ALCO meets regularly to monitor the interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, investment activities and directs changes in the composition of the balance sheet. Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective maturities or repricing characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Further, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while rate on other types may lag behind. We consider the anticipated effects of these factors when implementing our interest rate risk management objectives.

     Swaps

     As part of our asset and liability management strategy, we may engage in derivative financial instruments, such as interest rate swaps, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. Interest rate swaps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts. During 2002, we entered into eight different interest rate swap agreements as summarized in the table below.

     Under the swap agreements, we receive a fixed rate and pay a variable rate based on H.15 Prime. The swaps qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and are designated as hedges of the variability of cash flows we receive from certain of our Prime-indexed loans. In accordance with SFAS No. 133, these swap agreements are measured at fair value and reported as assets or liabilities on the consolidated statement of financial condition. The portion of the change in the fair value of the swaps that is deemed effective in hedging the cash flows of the designated assets are recorded in accumulated other comprehensive income (“OCI”) and reclassified into interest income when such cash flows occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss in the consolidated statement of earnings as a part of non-interest income. As of December 31, 2003, the amounts in accumulated OCI associated with these cash flows totaled $780,530 (net of tax of $520,354), of which $176,412 is expected to be reclassified into interest income within the next 12 months.

52

     Interest rate swaps information at December 31, 2003 is summarized as follows:

Current Notional
Amount	Floating Rate	Fixed Rate			Maturity Date	Unrealized Gain			Realized Gain1
$20,000,000	H.15 Prime2		6.95	%	4/29/2005	$	562,298		$	12,118
20,000,000	H.15 Prime2		7.59	%	4/30/2007		945,386			62,704
20,000,000	H.15 Prime2		6.09	%	10/09/2007		-			45,958
20,000,000	H.15 Prime2		6.58	%	10/09/2009		(104,741	)		(79,338	)
20,000,000	H.15 Prime2		7.03	%	10/09/2012		(322,991	)		(92,206	)
20,000,000	H.15 Prime2		5.60	%	12/17/2005		177,889			46,540
10,000,000	H.15 Prime2		6.32	%	12/17/2007		43,043			48,446
10,000,000	H.15 Prime2		6.83	%	12/17/2009		-			35,899
$140,000,000						$	1,300,884		$	80,121

1.	Gain included in the consolidated statement of income in 2003, representing hedge ineffectiveness.
2.	Prime rate is based on Federal Reserve statistical release H.15

During 2003, interest income received from the swap counterparties was $3.4 million compared to $990,000 during 2002. No such swap contracts were held during 2001. At December 31, 2003, we pledged to the interest rate swap counterparty as collateral agency securities with a book value of $2.0 million and real estate loans of $2.6 million.

     Interest Rate Sensitivity

     Our monitoring activities related to managing interest rate risk include both interest rate sensitivity “gap” analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the balance sheet, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with the use of a simulation model, which provides a dynamic assessment of interest rate sensitivity.

     The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated to reprice within a specific time period and the amount of interest-bearing liabilities anticipated to reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets repricing within a specific time period exceeds the amount of interest-bearing liabilities repricing within that same time period. Positive cumulative gaps suggest that earnings will increase when interest rates rise. Negative cumulative gaps suggest that earnings will increase when interest rates fall.

53

     The following table illustrates our combined asset and liability repricing as of December 31, 2003:

				Over 90
	90 days			Days to
	Or less			365 days			1-5 years		Over 5 yrs		Total
	(Dollars in thousands)
Total Investments*	$	50,553		$	15,755		$	49,547	$	62,225	$	178,080
Total Loans		840,265			29,190			65,338		68,636		1,003,654
Rate Sensitive Assets:		890,818			44,945			114,885		130,861		1,181,509
Deposits:
Time Certificate of Deposit $100,000 or more		156,099			188,313			4,234		—		348,646
Time Certificate of Deposit Under $100,000		39,345			55,353			767		29		95,494
Money Market		121,648			—			—		—		121,648
Now Accounts		12,477			—			—		—		12,477
Savings Accounts		128,928			11,100			14,804		2,670		157,502
Other liabilities:
FHLB Borrowings		50,000			5,000			5,000		—		60,000
Junior Subordinated Debentures		—			—			—		39,268		39,268
Rate Sensitive Liabilities:		508,497			259,766			24,805		41,967		835,035
Interest Rate Swap		(140,000	)					90,000		50,000		—
Net Gap Position		242,321			(214,821	)		180,080		138,894		346,474
Net Cumulative Gap Position		242,321			27,500			207,580		346,474

* Includes investment securities, federal funds sold, FRB stock, FHLB stocks, and deposits with other banks

     The simulation model discussed above also provides our ALCO with the ability to simulate our net interest income. In order to measure, at December 31, 2003, the sensitivity of our forecasted net interest income to changing interest rates, both a rising and falling interest scenario were projected and compared to a base market interest rate forecasts. One application of our simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our market value of equity. This analysis assesses the changes in market values of interest rate sensitive financial instruments that would occur in response to an instantaneous and sustained increase in market interest rates.

     At December 31, 2003, our net interest income and market value of equity expose related to these hypothetical changes in market interest rates are illustrated in the following table.

	Estimated Net			Market Value
Simulated	Interest Income			Of Equity
Rate Changes	Sensitivity			Volatility
+ 200 basis points		8.68	%		(17.47	)%
+ 200 basis points		5.77	%		(16.59	)%
+ 100 basis points		2.88	%		(10.95	)%
- 100 basis points		(4.88	)%		9.55	%

     The estimated sensitivity does not necessarily represent our forecast and the results may not be indicative of actual changes to Nara Bank’s net interest income. These estimates are based upon a number of assumptions including; the nature and timing of interest rate levels including yield curve shape, prepayment on loans and

54

securities, pricing strategies on loans and deposits, and replacement of asset and liability cashflow. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements, together with the report thereon of Deloitte & Touche LLP begin at page F-1 of this Report and is incorporated herein by reference and contain the following:

     Independent Auditors’ Report

     Consolidated Statements of Financial Condition as of December 31, 2003 and 2002

     Consolidated Statements of Income for the Three-Year Period Ended December 31, 2003

     Consolidated Statements of Changes in Stockholders’ Equity for the Three-Year Period Ended December 31, 2003

     Consolidated Statements of Cash Flows for the Three-Year Period Ended December 31, 2003

     Notes to Consolidated Financial Statements

     See “Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K” below for financial statements filed as a part of this Report.

Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	None

Item 9A. CONTROLS AND PROCEDURES

     We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(a)

Evaluation of Disclosure Controls and Procedures. Within 90 days prior to the date of this report, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended). Based on the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

(b)

Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect those internal controls subsequent to the date of the evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken.

55

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Incorporated herein by reference is the information from the section entitled “Election of Directors” and “Code of Ethics” from Nara Bancorp’s definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2003. Reference is also made in connection with the list of Executive Officers, which is provided under Item 4(a), “Executive Officers of the Registrant.”

Item 11. EXECUTIVE COMPENSATION

     Incorporated herein by reference is the information from the sections entitled “Election of Directors — Compensation of Board of Directors,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” from Nara Bancorp’s definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2003.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference is the information from the section entitled “Beneficial Ownership of Principal Stockholders and Management” from Nara Bancorp’s definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2003.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated herein by reference is the information from the section entitled “Certain Transactions” from Nara Bancorp’s definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2003.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     Incorporated herein by reference is the information from the section entitled “Principal Accounting Fees and Services” from Nara Bancorp’s definitive Proxy Statement, to be filed with the SEC within 120 days after December 31, 2003.

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PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) 1 and 2. Financial Statements

The financial statements listed on the Index to Financial Statements included under Item 8. “Financial Statements and Supplemental Data” are filed as part of this Form 10-K. All schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Financial Statements and related notes.

     (b) Reports on Form 8-K

     During the quarter ended December 31, 2003: (i) we filed with the SEC a Report on Form 8-K on October 20, 2003 for the purpose of furnishing the press release announcing our preliminary financial results for the fiscal quarter ended September 30, 2003 and (ii) we filed with the SEC a Report on Form 8-K on December 2, 2003 for the purpose of announcing under Item 5 the resignation of our President and CEO and filing under Item 7 a related press release.

     (c) List of Exhibits The exhibits marked (**) constitute compensation plans or arrangements:

Number	Description
3.1	Certificate of Incorporation of Nara Bancorp, Inc. (incorporated herein by reference to Appendix III included with the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on November 16, 2000)
3.2	Bylaws of Nara Bancorp, Inc. (incorporated herein by reference to Appendix IV included with the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on November 16, 2000)
3.3	Amended Bylaws of Nara Bancorp, Inc. (incorporated herein by reference to Exhibits filed with the Registrant’s Form 10-Q filed with the Securities and Exchange Commission on August 14, 2002)
3.4	Amended Certificate of Incorporation (incorporated herein by reference to the Registration Statement on Form S-8 wiled with the Securities and Exchange Commission on February 5, 2003.
4.1	Form of Stock Certificate of Nara Bancorp, Inc. (incorporated herein by reference to Exhibit 4.1 filed with Pre-Effective Amendment No. 1 to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on December 5, 2000)
4.2	Subordinated Note Purchase Agreement (incorporated herein by reference to Exhibit 4.2 filed with Registrant’s Form 10-Q for the quarter ended March 31, 2001 filed with the Securities and Exchange Commission on May 15, 2001)

57

Number	Description
4.3	Warrant Agreement (incorporated herein by reference to Exhibit 4.1 included with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 19, 2001)
4.4	Warrant Certificate Agreement (incorporated herein by reference to Exhibit 4.2 included with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 19, 2001)
4.5	Amended and Restated Trust Agreement of Trust dated March 28, 2001, by and among Delaware Trustee, Wilmington Trust Company as Property Trustee, the Nara Bancorp and the Administrative Trustees named therein1
4.6	Indenture dated March 28, 2001 between the Nara Bancorp and Wilmington Trust Company as Debenture Trustee1
4.7	Common Securities Guarantee Agreement dated March 28, 2001 of the Nara Bancorp1
4.8	Capital Securities Guarantee Agreement dated March 28, 2001 between Nara Bancorp and Wilmington Trust Company as Guarantee Trustee1
4.9	Amended and Restated Declaration of Trust dated March 26, 2002, by and among State Street Bank and Trust Company of Connecticut, National Association, as Institutional Trustee, Nara Bancorp, Inc., as sponsor.1
4.10	Indenture dated March 26, 2002 between the Nara Bancorp and State Street Bank and Trust Company of Connecticut, National Association as Trustee1
4.11	Guarantee Agreement dated March 26, 2002 be and between Nara Bancorp and State Street Bank and Trust Company of Connecticut, National Association1
10.1	Nara Bancorp, Inc. 2001 Nara Bank 2000 Continuation Long Term Incentive Plan (incorporated herein by reference to Exhibit 99.2 filed with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 9, 2001)**
10.2	Nara Bancorp, Inc. 2001 Nara Bank 1989 Continuation Stock Option Plan (incorporated herein by reference to Exhibit 99.1 filed with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 9, 2000)**
10.3	Nara Bank, N.A. Deferred Compensation Plan1**
10.4	Lease for premises located at 118 Broad Avenue, Palisades Park, New Jersey (incorporated herein by reference to Exhibit 10.4 filed with the Registrant’s Form 10K for the year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001)
10.5	Lease for premises located at 29 West 30th Street, New York, New York (incorporated herein by reference to Exhibit 10.5 filed with the Registrant’s Form 10K for the year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001)
10.6	Lease for premises located at 138-02 Northern Blvd., Flushing, New York (incorporated herein by reference to Exhibit 10.6 filed with the Registrant’s Form 10K for the year

58

Number	Description
	ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001)
10.7	Lease for premises located at 2250 Broadway, Oakland, California (incorporated herein by reference to Exhibit 10.7 filed with the Registrant’s Form 10K for the year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001)
10.8	Lease for premises located at 3701 Wilshire Blvd. Los Angeles, California (incorporated herein by reference to Exhibit 10.8 on 10K filed with the Securities and Exchange Commission on March 31, 2000)
10.9	Employment Agreement between Benjamin B. Hong and Nara Bank, N.A. (incorporated herein by reference to Exhibit 10.9 filed with Registrant’s Form 10-Q for the quarter ended March 31, 2001, filed with the Securities Exchange Commission on May 15, 2001)
10.10	Consent Order issued by the OCC (incorporated herein by reference to Exhibit 99.2 filed with the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 26, 2002)
10.11	Tax Sharing Agreement 1
10.12	Affiliate Agreement1
10.13	Form of Nara Bancorp, Inc Option Agreement with Nara Bancorp Directors (entered into by directors Ki Suh Park, Jesun Paik, and Steve Kim)1
10.14	Form of Nara Bancorp 2002 Stock Option Agreement entered into with William Davis and Michel Urich (incorporated herein by reference to Exhibit 99.1 filed with the Registrant’s Form S-8 filed with the Securities Exchange Commission on February 5, 2003)
10.15	Lease for premises located at 3600 Wilshire Blvd., #100A, Los Angeles, California2
10.16	Lease for premises located at 21080 Goldensprings Dr. Diamond Bar, California2
10.17	Agreement to acquire Asiana Bank, Sunnyvale, California3
10.18	Lease for premise located at 16 West 32nd Street, New York, New York3
10.19	Agreement to assume deposits and loans from Korea Exchange Bank of New York, Broadway Branch4
10.20	Lease for premise located at 1709 S. Nogales Street, Rowland Heights, California *
21.1	List of Subsidiaries1
23.1	Consent of Deloitte & Touche LLP*
31.1	Certification of CEO pursuant to section 302 of Sarbanes-Oxley of 2002*
31.2	Certification of CFO pursuant to section 302 of Sarbanes-Oxley of 2002 *
32.1	Certification of CEO pursuant to section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 *

59

Number	Description
32.2	Certification of CFO pursuant to section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 *

1.	Incorporated by reference to Exhibits filed with our Statement on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 30, 2002
2.	Incorporated by reference to Exhibits filed with our Statement on Form 10-Q for the quarter ended March 31, 2003 filed with the Securities and Exchange Commission on May 15, 2003
3.	Incorporated by reference to Exhibits filed with our Statement on Form 10-Q for the quarter ended June 30, 2003 filed with the Securities and Exchange Commission on August 14, 2003
4.	Incorporated by reference to Exhibits filed with our Statement on Form 10-Q for the quarter ended September 30, 2003 filed with the Securities and Exchange Commission on November 14, 2003
*	Filed herewith

60

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

		Nara Bancorp, Inc
By:	/s/ Benjamin B. Hong	Benjamin B. Hong President & Chief Executive 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.

By:	/s/ Chong-Moon Lee	March 15, 2004	Chong-Moon Lee Director and Chairman of the Board
By:	/s/ Benjamin B. Hong	March 15, 2004	Benjamin B. Hong Director and Chief Executive Officer (Principal Executive Officer)
By:	/s/ Thomas Chung	March 15, 2004	Thomas Chung Director
By:	/s/ Ki Suh Park	March 15 , 2004	Ki Suh Park Director
By:	/s/ Jesun Paik	March 15, 2004	Jesun Paik Director
By:	/s/ Steve Kim	March 15, 2004	Steve Kim Director
By:	/s/ Yong H Kim	March 15, 2004	Yong Hwan Kim Director
By:	/s/ John Park	March 15 , 2004	John Park Director
By	/s/ Timothy Chang	March 15, 2004	Timothy Chang Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

61

INDEPENDENT AUDITORS’ REPORT

Board of Directors and Stockholders
Nara Bancorp, Inc.
Los Angeles, California

We have audited the accompanying consolidated statements of financial condition of Nara Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2002 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Nara Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002 and the results of their operations and their cash flows for the each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, during the year ended December 31, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

/s/ Deloitte & Touche LLP

Los Angeles, California
March 15, 2004

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2003 AND 2002

ASSETS	2003		2002
Cash and cash equivalents:
Cash and due from banks	$	34,238,497	$	31,442,728
Federal funds sold		37,200,000		73,300,000
Term federal funds sold		5,000,000
Total cash and cash equivalents		76,438,497		104,742,728
Interest-bearing deposits with other financial institutions				95,000
Securities available for sale—at fair value		126,412,488		101,622,635
Securities held to maturity—at amortized cost (fair value: 2003 - $2,148,907; 2002 - $2,926,750)		2,001,493		2,779,618
Interest-only strip—at fair value		521,354		273,219
Interest rate swaps—at fair value		1,822,981		3,444,780
Loans held for sale—at the lower of cost or market		3,926,885		6,337,519
Loans receivable—net of allowance for loan losses (2003 - $12,470,735; 2002 - $8,457,917)		984,867,614		715,019,110
Premises and equipment—net		6,765,666		4,995,052
Federal Home Loan Bank stock—at cost		4,695,400		3,783,400
Federal Reserve Bank stock—at cost		1,263,300		963,465
Other real estate owned—net				35,541
Accrued interest receivable		4,718,360		4,195,498
Servicing asset		2,743,115		2,078,790
Deferred income taxes		10,892,336		4,908,701
Customers’ liabilities on acceptances		4,340,037		5,580,838
Cash surrender value of life insurance		14,302,761		13,744,037
Goodwill		1,909,150		874,967
Intangible assets —net		4,854,867		1,519,355
Other assets		7,551,335		3,490,008
TOTAL	$	1,260,027,639	$	980,484,261

F-1

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2003 AND 2002

LIABILITIES AND STOCKHOLDERS' EQUITY	2003			2002
LIABILITIES:
Deposits:
Noninterest bearing	$	325,646,661		$	236,922,962
Interest bearing:
Savings deposits		157,502,612			141,281,701
Money market and other		134,125,212			83,868,595
Time deposits of $100,000 or more		348,646,862			268,167,603
Other time deposits		95,493,348			86,677,370
Total deposits		1,061,414,695			816,918,231
Borrowings from Federal Home Loan Bank		60,000,000			65,000,000
Accrued interest payable		3,291,150			2,860,627
Acceptances outstanding		4,340,037			5,580,838
Junior subordinated debentures		39,268,000			18,648,000
Other liabilities		6,716,885			6,107,498
Total liabilities		1,175,030,767			915,115,194
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value—authorized, 20,000,000 and 10,000,000 shares; issued and outstanding, 11,560,089 and 10,690,630 shares at December 31, 2003 and 2002, respectively		11,560			10,690
Capital surplus		43,057,760			32,930,307
Deferred compensation		(10,222	)
Retained earnings		41,992,345			29,903,338
Accumulated other comprehensive (loss) income		(54,571	)		2,524,732
Total stockholders’ equity		84,996,872			65,369,067
TOTAL	$	1,260,027,639		$	980,484,261

See accompanying notes to consolidated financial statements. (Concluded)

F-2

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

	2003			2002		2001
INTEREST INCOME:
Interest and fees on loans	$	51,428,842		$	41,902,027	$	39,734,164
Interest on securities		5,767,834			5,016,644		4,858,564
Interest on interest rate swaps		3,432,139			990,213
Interest on federal funds sold		517,538			482,816		2,992,942
Interest on other investments, including time certificate of deposits with other financial institutions		278,308			178,834		273,848
Total interest income		61,424,661			48,570,534		47,859,518
INTEREST EXPENSE:
Interest on deposits		12,773,221			10,606,208		15,469,382
Interest on junior subordinated debentures		1,550,806			1,360,545		771,983
Interest on other borrowings		1,609,291			1,497,110		728,510
Total interest expense		15,933,318			13,463,863		16,969,875
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		45,491,343			35,106,671		30,889,643
PROVISION FOR LOAN LOSSES		5,385,000			2,686,000		750,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		40,106,343			32,420,671		30,139,643
NON-INTEREST INCOME:
Service charges on deposit accounts		7,677,881			6,333,629		5,902,862
Other charges and fees		7,366,017			7,088,993		5,558,487
Net gain on sales of SBA loans		4,264,264			3,043,147		1,550,124
Net gain on sale of loans		132,532
Net gain on sales of securities available for sale		854,036			1,012,929		916,947
Gain (loss) on sales of premises and equipment		(74,308	)		50,339		36,070
Net gain on sales of other real estate owned		77,521			29,963		35,555
Gain on interest rate swaps		80,121			441,976
Amortization of negative goodwill							1,323,895
Total non-interest income		20,378,064			18,000,976		15,323,940
NON-INTEREST EXPENSES:
Salaries and employee benefits		20,204,218			17,254,034		16,043,528
Occupancy		4,793,456			4,184,246		3,811,119
Furniture and equipment		1,582,039			1,530,045		1,289,841
Advertising and marketing		1,391,998			1,522,579		857,772
Communications		630,891			579,937		631,742
Data processing		2,087,462			1,699,399		1,514,733
Professional fees		2,339,294			2,138,039		1,201,979
Office supplies and forms		447,093			359,232		404,415
Other		3,828,528			3,073,938		2,608,481
Total non-interest expenses		37,304,979			32,341,449		28,363,610

(Continued)

F-3

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

	2003		2002		2001
INCOME BEFORE INCOME TAX PROVISION AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE	$	23,179,428	$	18,080,198	$	17,099,973
INCOME TAX PROVISION		8,866,275		6,776,760		6,316,444
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		14,313,153		11,303,438		10,783,529
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE				4,192,334
NET INCOME	$	14,313,153	$	15,495,772	$	10,783,529
EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE:
Basic	$	1.30	$	1.03	$	0.98
Diluted	$	1.24	$	0.98	$	0.93
EARNINGS PER SHARE — CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE:
Basic	$	—	$	0.38	$	—
Diluted	$	—	$	0.37	$	—
EARNINGS PER SHARE AFTER CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE:
Basic	$	1.30	$	1.41	$	0.98
Diluted	$	1.24	$	1.35	$	0.93

See accompanying notes to consolidated financial statements. (Concluded)

F-4

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

															Accumulated
	Number of														Other
	Shares			Common			Capital			Deferred		Retained			Comprehensive		Comprehensive
	Outstanding			Stock			Surplus			Compensation		Earnings			Income (Loss), Net		Income
BALANCE, JANUARY 1, 2001		10,923,858		$	10,924		$	32,098,033		$	—	$	12,114,836		$	288,378
Stock warrants exercised		115,850			116			637,309
Stock options exercised		104,634			104			236,981
Stock grant		1,332			2			11,653
Cash dividend declared													(822,753	)
($0.20 per share of common stock)
Comprehensive income:
Net income													10,783,529				$	10,783,529
Other comprehensive income:
Change in unrealized gain on securities available for sale and interest-only strips—net of tax																68,296		68,296
Total comprehensive income																	$	10,851,825
BALANCE, DECEMBER 31, 2001		11,145,674			11,146			32,983,976					22,075,612			356,674
Stock warrants exercised		120,900			120			725,730
Stock options exercised		31,354			32			100,577
Stock repurchased		(607,298	)		(608	)		(879,976	)				(5,483,024	)
Cash dividend declared													(2,185,022	)
($0.20 per share of common stock)
Comprehensive income:
Net income													15,495,772				$	15,495,772
Other comprehensive income:
Change in unrealized gain on securities available for sale and interest-only strips—net of tax																366,375		366,375
Change in unrealized gain on interest rate swap—net of tax																1,801,683		1,801,683
Total comprehensive income																	$	17,663,830
BALANCE, DECEMBER 31, 2002		10,690,630			10,690			32,930,307			—		29,903,338			2,524,732

F-5

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

													Accumulated
	Number of												Other
	Shares		Common		Capital		Deferred			Retained			Comprehensive			Comprehensive
	Outstanding		Stock		Surplus		Compensation			Earnings			Income (Loss), Net			Income
Warrants exercised		52,550		53		341,972
Stock options exercised		388,720		389		1,448,509
Issuance of restricted stock		2,000		2		22,998		(23,000	)
Stock issued in Asiana acquisition		426,189		426		7,999,574
Tax benefits from stock options exercised						314,400
Amortization of restricted stock								12,778
Cash dividend declared											(2,224,146	)
($0.20 per share of common stock)
Comprehensive income:
Net income											14,313,153					$	14,313,153
Other comprehensive income:
Change in unrealized gain on securities available for sale and interest-only strips — net of tax														(1,558,151	)		(1,558,151	)
Change in unrealized gain on interest rate														(1,021,152	)		(1,021,152	)
swaps — net of tax
Total comprehensive income																$	11,733,850
BALANCE, DECEMBER 31, 2003		11,560,089	$	11,560	$	430,547,760	$	(10,222	)	$	41,992,345		$	(54,571	)

	2003			2002			2001
DISCLOSURE OF RECLASSIFICATION AMOUNT FOR DECEMBER 31:
Unrealized (loss) gain on securities available for sale and interest-only strips:
Unrealized holding (loss) gain arising during the period—net of tax (benefit) expense $(697,153) in 2003, $649,422 in 2002 and $412,309 in 2001	$	(1,045,729	)	$	974,132		$	618,464
Less: Reclassification adjustment for gains included in net earnings—net of tax expense of $341,614 in 2003, $405,172 in 2002 and $366,779 in 2001		(512,422	)		(607,757	)		(550,168	)
Net change in unrealized (loss) gain of securities available for sale and interest-only strips—net of tax (benefit) expense of $(1,038,767,) in 2003, $244,250 in 2002 and $45,533 in 2001	$	(1,558,151	)	$	366,375		$	68,296
Unrealized gain on interest rate swaps:
Unrealized holding gains arising during the period—net of tax expense of $692,088 in 2003 and $1,597,206 in 2002	$	1,038,131		$	2,395,811		$	—
Less: Reclassification adjustments to interest income—net of tax expense of $1,372,856 in 2003 and $396,085 in 2002		(2,059,283	)		(594,128	)
Net change in unrealized (loss) gain of interest rate swaps—net of tax (benefit) expense of $(680,768) in 2003 and $1,201,121 in 2002	$	(1,021,152	)	$	1,801,683		$	—

See accompanying notes to consolidated financial statements. (Concluded)

F-6

NARA BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,313,153		$	15,495,772		$	10,783,529
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and accretion		1,623,559			(125,234	)		(425,881	)
Other than temporary impairment on securities available for sale								138,083
Provision for loan losses		5,385,000			2,686,000			750,000
Provision for losses on other real estate owned					16,414
Proceeds from sales of SBA loans		56,189,813			50,009,257			30,764,933
Net gain on sales of SBA loans		(4,264,264	)		(3,043,147	)		(1,550,124	)
Net gain on sales of other real estate owned		(77,521	)		(29,963	)		(35,555	)
Net gain on sale of loans		(132,532	)
Gain on interest rate swaps		(80,121	)		(441,976	)
Loss (gain) on sales of premises and equipment		74,308			(49,139	)		(36,070	)
Originations of SBA loans held for sale		(73,451,200	)		(75,466,956	)		(25,691,759	)
Deferred income tax (benefit) provision		(2,783,460	)		(318,836	)		1,211,105
Net gain on sales of securities available for sale		(854,036	)		(1,012,929	)		(916,947	)
(Increase) decrease in accrued interest receivable		(359,132	)		(952,726	)		194,342
(Increase) decrease in other assets		(7,322,468	)		14,943			5,540,737
(Decrease) increase in accrued interest payable		334,256			(386,333	)		(549,090	)
Increase (decrease) in other liabilities		898,681			412,127			(3,924,577	)
Cumulative effect of a change in accounting principle					(4,192,334	)
Net cash (used in) provided by operating activities		(10,505,964	)		(17,385,060	)		16,252,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable		(227,901,158	)		(193,476,942	)		(150,689,726	)
Net increase in cash surrender value of life insurance		(558,724	)		(3,314,075	)		(5,437,334	)
Purchases of premises and equipment		(3,201,615	)		(800,141	)		(2,254,989	)
Proceeds from sales of premises and equipment		265,511			39,000			1,757,812
Proceeds from matured, called or paid down principal on securities available for sale		43,489,985			25,151,503			25,232,515
Proceeds from sales of securities available for sale		22,404,291			45,571,112			17,431,065
Proceeds from matured or called securities held to maturity		793,535			1,662,949			11,420,514
Purchases of securities available for sale		(88,109,223	)		(105,570,969	)		(51,792,219	)
(Increase) decrease in interest-only strip		(245,094	)		(8,894	)		306,524
Proceeds from maturities of interest-bearing deposits with other financial institutions		95,000			5,242,000			5,549,000
Proceeds from sales of other real estate owned		166,805			131,759			298,505
Purchases of Federal Reserve Bank stock		(299,835	)		(45,165	)
Purchase of Federal Home Loan Bank stock		(912,000	)		(3,516,700	)		(15,100	)
Purchase of interest-bearing deposits with other financial institutions					(4,850,000	)
Net cash used in investing activities		(254,012,522	)		(233,784,563	)		(148,193,433	)

F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

	2003			2002			2001
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	215,102,466		$	227,073,829		$	62,135,481
Payment for retirement of subordinated notes					(4,300,000	)
Proceeds from stock options exercised		1,448,898			110,609			237,085
Proceeds from Federal Home Loan Bank borrowings		(5,000,000	)		60,000,000
Proceeds from issuance of stock grant								11,655
Proceeds for exercise of warrants		342,025			725,850			637,425
Payments for stock repurchased					(6,363,608	)
Dividends paid		(2,182,699	)		(1,648,784	)		(822,753	)
Net proceeds from issuance of junior subordinated debentures		20,620,000			7,729,459			9,656,500
Net cash provided by financing activities		230,330,690			283,317,355			71,855,393
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(34,187,796	)		32,147,732			(60,085,314	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		104,742,728			72,594,996			132,680,310
CASH AND CASH EQUIVALENTS FROM ASIANA ACQUISITION		5,883,565
CASH AND CASH EQUIVALENTS, END OF YEAR	$	76,438,497		$	104,742,728		$	72,594,996
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	15,502,796		$	13,808,957		$	17,518,965
Income taxes paid		11,537,485			5,288,900			7,960,752
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Transfer of loan receivable to loan held for sale	$	—					$	8,731,016
Transfer of loans to other real estate owned		15,601			80,636
Dividend payable		577,685			536,238
Purchase of Asiana Bank
Fair value of assets acquired		36,668,128
Fair value of liabilities assumed		29,521,388
Purchase price of acquisition		8,000,000
Goodwill created		1,034,183

See accompanying notes to consolidated financial statements. (Concluded)

F-8

NARA BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 2003

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	Principles of Consolidation—The accounting and reporting policies of Nara Bancorp, Inc. and subsidiaries (the “Company”) are in accordance with accounting principles generally accepted in the United States of America and conform to practices within the banking industry. The consolidated financial statements include the accounts of Nara Bancorp, Inc. (the “Bancorp”) and its wholly owned subsidiaries, principally Nara Bank, N.A. (“Bank”).
	The Bancorp was formed as a holding company of the Bank and registered with the Securities and Exchange Commission under the Securities Ac of 1933 on December 5, 2000. Effective February 2, 2001, upon consummation of the reorganization of the Bank into a holding company structure, each of the Bank’s common shares at par value of $3 was exchanged for one share of the Bancorp’s common stock at par value of $0.001. The reorganization was accounted for at historical cost in a manner similar to a pooling of interests.
	The Bank, a national association organized under the laws of the United States, maintains 15 branch operations and five loan production offices serving individuals and small to medium-sized businesses in the Los Angeles, San Jose, New York City, Seattle, Chicago, Atlanta, Virginia, and surrounding areas. The Bank’s primary source of revenue is from providing financing for business working capital, commercial real estate and trade activities and its investment portfolio.
	On August 25, 2003, the Company purchased Asiana Bank at a price of $8 million. Nara Bancorp issued approximately 426,000 shares of common stock for this acquisition and Asiana was merged with and into the Bank. Asiana Bank had two branches in Northern California: one branch in Silicon Valley and one branch in Oakland. Both branches have been closed and consolidated into the Bank’s existing branch in both locations. The Bank acquired approximately $22.4 million in net loans and assumed approximately $29.3 million in deposits
	Cash and Cash Equivalents—Cash and cash equivalents include cash and due from banks, federal funds sold and term federal funds sold, all of which have original maturities less than 90 days. The Company may be required to maintain reserve balances with the Federal Reserve Bank under the Federal Reserve Act. The reserve balance was approximately $4,803,000 at December 31, 2003 and approximately $2,740,000 at December 31, 2002.
	Interest-Bearing Deposits in Other Financial Institutions—Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.
	Securities— Securities are classified into one of three categories and accounted for as follows:

(i)	Securities that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and reported at amortized cost;
(ii)	Securities that are bought and held principally for the purpose of selling them in the near future are classified as “trading securities” and reported at fair value. Unrealized gains and losses are recognized in income; and

F-9

(iii) Securities not classified as held-to-maturity or trading securities are classified as “available for sale” and reported at fair value. Unrealized gains and losses are reported as a separate component of stockholders’ equity as accumulated other comprehensive income (loss), net of taxes.

Accreted discounts and amortized premiums on securities are included in interest income using the interest method, and realized gains or losses related to sales of securities are calculated using the specific identification method. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. The Company did not record any other than temporary declines in 2002 and 2003. During 2001, the Company recorded a write-down of $138,083 on a security from the available-for-sale portfolio due to such other than temporary decline.

Derivative Financial Instruments and Hedging Transactions—- As part of the Company’s asset and liability management strategy, it may engage in derivative financial instruments, such as interest rate swaps, with the overall goal of minimizing the impact of interest rate fluctuations on its net interest margin. During 2002, the Company entered into eight interest rate swap agreements. The objective for the interest rate swaps is to manage asset and liability positions in connection with the Company’s overall strategy of minimizing the impact of interest rate fluctuations on its interest rate margin. As part of the Company’s overall risk management, the Company’s Asset Liability Committee, which meets monthly, monitors and measures interest rate risk and the sensitivity of assets and liabilities to interest rate changes, including the impact of the interest rate swaps. No other swaps or derivative contracts were entered into during 2003.

The interest rate swaps qualify as cash flow hedges under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, and are designated as hedges of the variability of cash flows the Company receives from certain of its Prime-indexed loans. In accordance with SFAS No. 133, these interest rate swap agreements are measured at fair value and reported as assets or liabilities on the consolidated statement of financial condition. The portion of the change in the fair value of the interest rate swaps that is deemed effective in hedging the cash flows of the designated assets is recorded as a component of accumulated other comprehensive income, net of tax, and reclassified into interest income as such cash flows occur in the future. Any ineffectiveness resulting from the hedges is recorded as a gain or loss in the consolidated statements of income as a part of non-interest income.

Loans—Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is discontinued when a loan is over 90 days delinquent or if management believes that collection is highly uncertain. Generally, payments received on non-accrual loans are recorded as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest accruals.

Nonrefundable fees, net of certain direct costs, associated with the origination or acquisition of loans are deferred and recognized as an adjustment of the loan yield over the life of the loan in a manner that approximates the interest method. Other loan fees and charges, representing service costs for the prepayment of loans, for delinquent payments or for miscellaneous loan services, are recorded as income when collected.

Certain Small Business Administration (“SBA”) loans that the Company has the intent to sell prior to maturity have been designated as held for sale at origination and are recorded at the lower of cost or market value, on an aggregate basis. A valuation allowance is established if the aggregate market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments.

F-10

A portion of the premium on sale of SBA loans is recognized as gain on sale of loans at the time of the sale. The remaining portion of the premium (relating to the portion of the loan retained) is deferred and amortized over the remaining life of the loan as an adjustment to yield. Servicing assets are recognized when loans are sold with servicing retained. Servicing assets are recorded based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discounted rate based on the related note rate, plus 1 to 2%. Servicing assets are amortized in proportion to and over the period of estimated future net servicing income. The Company has capitalized $1,121,326, $1,187,630, and $356,942 of servicing assets during 2003, 2002, and 2001, respectively, and amortized $457,001, $291,254, and $235,667 during the years ended December 31, 2003, 2002, and 2001, respectively.

Management periodically evaluates servicing assets for impairment. At December 31, 2003, the fair value of servicing assets was determined using a weighted-average discount rate of 6.90% and prepayment speed of 11.4%. At December 31, 2002, the fair value of servicing assets was determined using a weighted-average discount rate of 7.6% and a prepayment speed of 10.5%. For purposes of measuring impairment, servicing assets are stratified by loan type. An impairment is recognized if the carrying value of servicing assets exceeds the fair value of the stratum. The fair values of servicing assets were approximately $3,376,000 and $2,433,000 at December 31, 2003 and 2002, respectively.

The estimated annual amortization of servicing assets as of December 31, 2003, balances for each of the succeeding five fiscal years is indicated table below:

Year Ending December 31
2004		436,808
2005		377,089
2006		323,755
2007		276,072
2008		233,512
	$	1,647,236

An interest-only strip is recorded based on the present value of the excess of the total future income from serviced loans over the contractually specified servicing fee, calculated using the same assumptions as used to value the related servicing assets. Such interest-only strip is accounted for at the estimated fair value, with unrealized gain or loss, net of tax, recorded as a component of accumulated other comprehensive income (loss).

The Company offers direct financing leases to customers whereby the assets leased are acquired without additional financing from other sources. Direct financing leases are carried net of unearned income, unamortized nonrefundable fees and related direct costs associated with the origination or purchase of leases.

Allowance for Loan Losses—The allowance for loan losses is maintained at a level considered adequate by management to absorb potential losses in the loan portfolio. The adequacy of the allowance is determined by management based upon an evaluation and review of the loan portfolio, consideration of historical loan loss experience, current economic conditions, changes in the composition of the loan portfolio, analysis of collateral values and other pertinent factors.

F-11

The Company considers a loan as impaired when it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

For commercial, real estate and certain consumer loans, the Company bases the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan’s effective interest rate or on the fair value of the loan’s collateral if the loan is collateral dependent. The Company evaluates installment loans for impairment on a collective basis, because these loans are smaller balance, homogeneous loans. Impairment losses are included in the allowance for loan losses through a charge to provision for loan losses. Upon disposition of an impaired loan, any related allowance is charged off to the allowance for loan losses.

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on buildings, furniture, fixtures and equipment is computed on the straight-line method over the estimated useful lives of the related assets, which is 40 years for buildings and range from 3 to 5 years for furniture, fixtures and equipment.

Leasehold improvements are capitalized and amortized on the straight-line method over the term of the lease or the estimated useful lives of the improvements, whichever is shorter. An accelerated method of depreciation is followed, as appropriate, for federal income tax purposes.

Other Real Estate Owned—Other real estate owned, which represents real estate acquired through foreclosure in satisfaction of commercial and real estate loans, is stated at fair value less estimated selling costs of the real estate. Loan balances in excess of the fair value of the real estate acquired at the date of acquisition are charged to the allowance for loan losses. Any subsequent operating expenses or income, reduction in estimated fair values, and gains or losses on disposition of such properties are charged or credited to current operations.

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

In connection with the transitional impairment evaluation required by SFAS No. 142, the Company performed an assessment of whether there was an indication that goodwill was impaired as of January 1, 2002. The Company also tested goodwill for impairment as of December 31, 2003 and 2002, noting no impairment in recorded goodwill of $1,909,150 and $874,967, respectively.

F-12

At December 31, 2001, the Company had negative goodwill (the amount by which the fair value of assets acquired and liabilities assumed exceeds the cost of an acquired company) of $4,192,334. In accordance with SFAS No. 142, such amount was recognized in the consolidated statement of income as the cumulative effect of a change in accounting principle on January 1, 2002. The recognition of negative goodwill is not tax effected, as no deferred taxes were allocated to it in the initial purchase accounting.

Income Taxes—Deferred income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. 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.

Earnings per Share (“EPS”)—Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company.

Stock Split—On February 14, 2003, the Company’s Board of Directors approved a two-for-one stock split effected in the form of a 100% stock dividend. All share and per share amounts included in the accompanying consolidated financial statements and footnotes have been restated to reflect the stock split.

Stock-Based Compensation—SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employees compensation plans at fair value. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock option is measured as the excess, if any, of the fair value of the Company’s stock at the date of grant over the grant price.

The Company has adopted the disclosure only provisions of SFAS No. 123. Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts as follows:

F-13

	Year Ended December 31
	2003			2002			2001
Before cumulative effect of a change in accounting principle:
Income before cumulative effect of a change in accounting principle—as reported	$	14,313,153		$	11,303,438		$	10,783,529
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards—net of related tax effects		(529,604	)		(181,341	)		(89,689	)
Pro forma income before cumulative effect of a change in accounting principle	$	13,783,549		$	11,122,097		$	10,693,840
EPS:
Basic—as reported	$	1.30		$	1.03		$	0.98
Basic—pro forma		1.25			1.01			0.97
Diluted—as reported	$	1.24		$	0.98		$	0.93
Diluted—pro forma		1.19			0.97			0.92

	2003			2002			2001
After cumulative effect of a change in accounting principle:
Net income—as reported	$	14,313,153		$	15,495,772		$	10,783,529
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards—net of related tax effects		(529,604	)		(181,341	)		(89,689	)
Pro forma net income	$	13,783,549		$	15,314,431		$	10,693,840
EPS:
Basic—as reported	$	1.30		$	1.41		$	0.98
Basic—pro forma		1.25			1.40			0.97
Diluted—as reported	$	1.24		$	1.35		$	0.93
Diluted—pro forma		1.19			1.33			0.92

The weighted-average fair value of options granted during 2003, 2002 and 2001, and was $4.38, $4.31, and $3.58, respectively. The fair value of options granted under the Bank’s stock option plans during 2003, 2002 and 2001 was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used: 0.5% dividends yield, volatility of 28.70% (2003) volatility of 35.1% (2002) and 35.5% (2001), risk-free interest rate of 2.32% (2003), 5.6% (2002) and 5.5% (2001) and expected lives of three to five years.

Impairment of Long-Lived Assets—The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted) over the remaining useful life of the asset are less than the carrying value, an impairment loss would be recorded to reduce the related asset to its estimated fair value.

F-14

Use of Estimates in the Preparation of Consolidated Financial Statements—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are susceptible to change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned, servicing assets, interest-only strips, derivatives, goodwill and other intangible assets.

Recent Accounting Pronouncements—SFAS No. 148, Accounting for Stock-based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123, amends 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. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of SFAS No. 148 are effective for annual financial statements for fiscal years ending after December 15, 2002 and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The Company has not determined whether it will adopt the fair value-based method of accounting for stock-based employee compensation in future periods.

The FASB issued Interpretation No. (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107 and rescission of FIN 34, Disclosure of Indirect Guarantees of Indebtedness of Others, in November 2002. FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of such interpretation did not have a material impact on the Company’s results of operations, financial position or cash flows.

In January 2003, the FASB issued Interpretation No. 46 — “Consolidation of Variable Interest Entities” (“FIN 46”). In December 2003, the FASB revised FIN 46 and codified certain FASB Staff Positions previously issued for FIN 46 (“FIN 46R). The objective of FIN 46 as originally issued, and as revised by FIN 46R, was to improve financial reporting by companies involved with variable interest entities. Prior to the effectiveness of FIN 46, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changed that standard by requiring a variable interest entity to be consolidated by a company if that company was subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 applied immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to older entities in the first fiscal year or interim period beginning after June 15, 2003. The provisions of FIN 46R for the Company are required to be adopted prior to the first reporting period that ends after March 15, 2004. The adoption of FIN 46 and FIN46R did not have a significant impact on the financial position, results of operations, or cash flows of the Company.

In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for differences between the contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased loans or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and debt securities acquired after December 31, 2004. Although the Company anticipates that the implementation of SOP 03-3 will require significant loan system and operational changes to track credit related losses on loans purchased starting in 2005, it is not expected to have a significant effect on the consolidated financial statements.

Reclassifications—Certain reclassifications were made to the prior year’s presentation to conform to the current year’s presentation.

F-15

2.	SECURITIES
	The following is a summary of securities at December 31:

	2003
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale
Debt securities:
U.S. government and federal agency	$	26,743,525	$	220,715	$	(60,926	)	$	26,903,314
Collateralized mortgage obligations		34,123,450		98,976		(530,539	)		33,691,887
Mortgage-backed securities		30,292,533		101,392		(295,467	)		30,098,458
Municipal bonds		22,932,514		418,037		(98,046	)		23,252,505
U.S. corporate bonds		2,968,342		78,032					3,046,374
Total debt securities		117,060,364		917,152		(984,978	)		116,992,538
Equity securities—U.S. government agency preferred stock		10,859,524				(1,439,574	)		9,419,950
	$	127,919,888	$	917,152	$	(2,424,552	)	$	126,412,488
Held to Maturity
Debt securities—U.S. government and federal agency	$	2,001,493	$	147,414	$			$	2,148,907

	2002
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale
Debt securities:
U.S. government and federal agency	$	34,546,179	$	611,180		(300	)	$	35,157,059
Collateralized mortgage obligations		6,226,854		97,447					6,324,301
Mortgage-backed securities		16,151,173		192,298					16,343,471
Asset-backed securities		87,528		82					87,610
Municipal bonds		27,133,120		410,032		(41,187	)		27,501,965
U.S. corporate bonds		5,588,585		36,639		(225,100	)		5,400,124
Total debt securities		89,733,439		1,347,678		(266,587	)		90,814,530
Equity securities—U.S. government agency preferred stock		10,754,891		53,214					10,808,105
	$	100,488,330	$	1,400,892	$	(266,587	)	$	101,622,635
Held to Maturity
Debt securities—U.S. government and federal agency	$	2,779,618	$	200,036	$	(52,904	)	$	2,926,750

For the years ended December 31, 2003, 2002 and 2001, proceeds from sales of securities available for sale amounted to $22,404,291, $45,571,112 and $17,431,065 respectively. Gross realized gains from the sales of securities available for sale amounted to $854,036, $1,434,966 and $916,947, respectively. There were no gross realized losses from sales during 2003 and 2001. Gross realized losses from the sale of securities available for sale amounted $422,037 during 2002.

The amortized cost and estimated fair value of debt securities at December 31, 2003, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

F-16

			Estimated
	Amortized		Fair
	Cost		Value
Held to maturity:
Due after one year through five years	$	2,001,493	$	2,148,907
Available for sale:
Due within one year	$	500,333	$	513,181
Due after one year through five years		16,687,590		16,808,149
Due after five years through ten years		19,271,639		19,441,199
Due after ten years		80,600,802		80,230,009
	$	117,060,364	$	116,992,538

Securities with amortized cost of approximately $4,967,000 and $3,499,000 at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

The following table shows our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.

	Less than 12 months					12 months or longer					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
US government and federal agency	$	11,678,847	$	(60,926	)	$	—	$	—		$	11,678,847	$	(60,926	)
Collateralized mortgage obligations		21,938,631		(530,539	)		—		—			21,938,631		(530,539	)
Mortgage-backed securities		21,274,834		(295,467	)		—		—			21,274,834		(295,467	)
Municipal bonds		4,825,785		(90,153	)		1,154,556		(7,893	)		5,980,341		(98,046	)
U.S. corporate bonds		—		—			—		—			—		—
U.S. government agency preferred stock		9,419,950		(1,439,574	)		—		—			9,419,950		(1,439,574	)
	$	69,138,047	$	(2,416,659	)	$	1,154,556	$	(7,893	)	$	70,292,603	$	(2,424,552	)

3.	LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
	The following is a summary of loans by major category at December 31:

	2003			2002
Commercial loans	$	360,201,229		$	312,228,728
Real estate loans		575,930,182			355,786,984
Consumer loans		63,323,101			56,448,278
Lease financing		48,273			339,171
		999,502,785			724,803,161
Unamortized deferred loan fees—net of costs		(2,164,436	)		(1,326,134	)
Allowance for loan losses		(12,470,735	)		(8,457,917	)
Loans receivable—net	$	984,867,614		$	715,019,110

F-17

Management believes that the allowance for loan losses is adequate to provide for losses inherent in the loan portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. The Bank’s lending is concentrated in consumer, commercial and real estate loans in Los Angeles, San Jose, New York City, Seattle, Atlanta, Chicago, New Jersey and surrounding areas. Although management believes the level of the allowance is adequate to absorb losses inherent in the loan portfolio, declines in the local economy, as well as other unforeseen events, may result in increasing losses that cannot reasonably be predicted at this date.

Activity in the allowance for loan losses is as follows for the years ended December 31:

	2003			2002			2001
Balance, beginning of year	$	8,457,917		$	6,709,575		$	6,979,857
Provision for loan losses		5,385,000			2,686,000			750,000
Allowance acquired in business acquisition		668,830
Loans charged off		(2,415,719	)		(2,413,888	)		(3,779,112	)
Recoveries of charge-offs		509,707			1,372,230			2,294,830
Recapture (provision) of losses on commitments to extend credit and letters of credit		(135,000	)		104,000			464,000
Balance, end of year	$	12,470,735		$	8,457,917		$	6,709,575

The reserve for losses on commitments to extend credit and letters of credit is primarily related to undisbursed funds on lines of credit. The Company evaluates credit risk associated with the loan portfolio at the same time it evaluates credit risk associated with the commitments to extend credit and letters of credit. However, the allowances necessary for the commitments is reported separately in other liabilities in the accompanying consolidated statements of financial condition and not as part of the allowance for loan losses, as presented above. The reserve for losses on commitments to extend credit and letters of credit was $468,000 and $333,000 at December 31, 2003 and 2002, respectively.

At December 31, 2003 and 2002, the Company had classified $4,885,000 and $2,014,000, respectively, of its commercial and real estate loans as impaired, with specific reserves of $1,588,000 and $1,286,000 and, respectively. There were no impaired loans without specific reserves. The average recorded investment in impaired loans during the years ended December 31, 2003, 2002 and 2001 was $2,992,914, $2,004,697 and $1,712,722, respectively. It is generally the Bank’s policy to place loans on non-accrual status when they are 90 days past due. At December 31, 2003, loans on non-accrual status totaled $4,854,819, compared to $1,063,573 at December 31, 2002. Interest income of $ 115,201, $125,291 and $78,577 was recognized on impaired loans during the years ended December 31, 2003, 2002 and 2001, respectively, all of which was received in cash.

The following is an analysis of loans to directors of the Bank and its affiliates for December 31. All such loans were made under terms that are consistent with the Bank’s normal lending policies:

	2003			2002
Outstanding balance, beginning of year	$	1,294,453		$	1,598,000
Repayments		(652,009	)		(303,547	)
Outstanding balance, end of year	$	642,444		$	1,294,453

Income from these loans totaled approximately $43,000, $108,000, and $93,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

At December 31, 2003 and 2002, the Bank had $142,359,954 and $106,262,900, respectively, of SBA loans sold to unaffiliated parties for which it performs servicing.

F-18

4.	PREMISES AND EQUIPMENT
	Premises and equipment consisted of the following at December 31:

	2003			2002
Equipment, furniture and fixtures	$	6,831,483		$	5,710,318
Leasehold improvements		5,902,723			4,443,133
		12,734,206			10,153,451
Accumulated depreciation and amortization		(5,968,540	)		(5,158,399	)
	$	6,765,666		$	4,995,052

The depreciation expense was $877,000, $810,000 and $733,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

5.	OTHER REAL ESTATE OWNED
	The following is a summary of the changes in the allowance for losses on other real estate owned for the years ended December 31:

	2003			2002			2001
Balance, beginning of year	$	7,618		$	—		$	37,293
Provision for losses					16,414
Charge-offs		(7,618	)		(8,796	)		(37,293	)
Balance, end of year	$	—		$	7,618		$	—

(Income) expense activities related to other real estate owned include the following for the year ended December 31:

	2003			2002			2001
Net gain on sales of other real estate owned	$	(77,521	)	$	(29,963	)	$	(35,555	)
Provision for losses					16,414
Operating expenses—net of rental income		604			10,897			(2,893	)
(Income) expense—net	$	(76,917	)	$	(2,652	)	$	(38,448	)

6.

GOODWILL AND INTANGIBLES

In October 1998, the Company purchased a branch of Korea Exchange Bank of New York (“KEBNY”) and recorded goodwill of $1,117,000 and a core deposit intangible of $881,000. Through December 31, 2001, the goodwill and core deposit intangible were being amortized on a straight-line basis over estimated useful lives of 15 and seven years, respectively. On January 1, 2002, the Company adopted SFAS No. 142, and as a result, no longer amortizes goodwill but will test it at least annually for impairment. The Company will continue to amortize the core deposit intangible over its original estimated useful life of seven years.

F-19

In November 2002, the Company purchased certain loans and deposits from Industrial Bank of New York (“IBKNY”) and recorded a core deposit intangible of $1,187,000. The Company is amortizing the core deposit intangible over an estimated useful life of seven years.

In August 2003, the Company purchased Asian Bank (“Asiana”) at a price of $8.0 million in common stock, and recorded goodwill of approximately $1.0 million and a core deposit intangible of $1.0 million. The Company is amortizing the core deposit intangible over an estimated useful life of seven years.

On October 2003, the Company purchased certain loans and deposits from Korea Exchange Bank, Broadway branch in New York (“KEB, Broadway”) and recorded a core deposit intangible of approximately $2,726,000, which is being amortized over an estimated useful life of seven years.

Following is a summary of the Company’s intangible assets at December 31:

	2003					2002
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Goodwill:
Goodwill — KEBNY	$	1,116,975	$	(242,008	)	$	1,116,975	$	(242,008	)
Goodwill — Asiana		1,034,183		—			—		—
Total	$	2,151,158	$	(242,008	)	$	1,116,975	$	(242,008	)
Intangible assets:
Core deposit—Asiana	$	1,018,314	$	(12,123	)	$	—	$	—
Core deposit—IBKNY		1,187,309		(183,750	)		1,187,309		(14,134	)
Core deposit—KEB, Broadway		2,726,095		(64,907	)		—		—
Core deposit—KEBNY		881,180		(697,251	)		881,180		(535,000	)
Total	$	5,812,898	$	(958,031	)	$	2,068,489	$	(549,134	)

For the year ended December 31, 2003, the Company recorded amortization expense of approximately $409,000 related to core deposit intangibles. The estimated annual amortization as of December 31, 2003, balances for each of the succeeding five fiscal years is indicated table below:

	2004		2005		2006		2007		2008
Core deposit — IBKNY	$	169,616	$	169,616	$	169,616	$	169,616	$	169,616
Core deposit — KEBNY		125,883		58,046		—		—		—
Core deposit — Asiana		145,473		145,473		145,473		145,473		145,473
Core deposit — KEB, Broadway		389,442		389,442		389,442		389,442		389,442
Total	$	830,414	$	762,577	$	704,531	$	704,531	$	704,531

Goodwill increased by approximately $1.0 million during the year ended December 31, 2003 relating to the purchase of Asiana. The Bank tested goodwill for impairment as of December 31, 2003 and determined that there was no impairment.

F-20

The following table sets forth a reconciliation of reported net income and EPS information showing the pro forma effect if SFAS No. 142 had been adopted in the prior year for the years ended December 31.

	2003		2002			2001
Reported income	$	14,313,153	$	15,495,772		$	10,783,529
Deduct: Recognition of negative goodwill				(4,192,334	)
Reported income before cumulative effect of a change in accounting principle		14,313,153		11,303,438			10,783,529
Add back: Goodwill amortization							44,679
Deduct: Negative goodwill amortization							(1,323,895	)
Adjusted net income	$	14,313,153	$	11,303,438		$	9,504,313
Basic EPS:
Reported net income	$	1.30	$	1.41		$	0.98
Recognition of negative goodwill				(0.38	)
Goodwill amortization
Negative goodwill amortization							(0.12	)
Adjusted net income	$	1.30	$	1.03		$	0.86
Diluted EPS:
Reported net income	$	1.24	$	1.35		$	0.93
Recognition of negative goodwill				(0.37	)
Goodwill amortization
Negative goodwill amortization							(0.11	)
Adjusted net income	$	1.24	$	0.98		$	0.82
Basic		11,027,945		10,960,286			11,027,826
Diluted		11,552,341		11,488,473			11,652,872

7.	DEPOSITS
	The scheduled maturities of time deposits are as follows at December 31:

Year Ending
December 31	2003		2002
2004	$	439,211,944	$	350,297,046
2005		1,642,972		1,116,045
2006		2,334,635		395,927
2007		814,976		2,090,000
2008		100,000		800,000
Thereafter		35,683		145,955
	$	444,140,210	$	354,844,973

Interest expense for certificates of deposit of $100,000 or more amounted to $6,422,323, $5,177,395 and $7,051,608 in 2003, 2002 and 2001, respectively.

F-21

8.	FHLB BORROWINGS
	The Company maintains a secured credit facility with the Federal Home Loan Bank of San Francisco (“FHLB”) against which the Company may take advances. The terms of this credit facility require the Company to maintain in safekeeping with the FHLB eligible collateral of at least 100% of outstanding advances.
	At December 31, 2003 and 2002, securities with amortized cost of approximately $40,152,000 and $21,823,000, respectively, were pledged as collateral for borrowings from the FHLB. At December 31, 2003 and 2002, commercial real estate loans with the book value of $294,396,000 and $191,716,000, respectively, were also pledged as collateral for borrowings from the FHLB.
	At December 31, 2003 and 2002, these borrowings have a weighted-average interest of 2.1% and 2.6%, respectively, and have various maturities through October 2007.
	At December 31, 2003, the contractual maturities of FHLB borrowings are as follows:

Year Ended December 31
2004	$	50,000,000
2005		5,000,000
2006
2007		5,000,000
	$	60,000,000

9.	JUNIOR SUBORDINATED DEBENTURES
	At December 31, 2003, five wholly-owned subsidiary grantor trusts established by Bancorp had issued $38 million of pooled Trust Preferred Securities (“trust preferred securities”). Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Bancorp. The Debentures are the sole assets of the trusts. The Bancorp’s obligations under the junior subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Bancorp of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Bancorp has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.
	The following table is a summary of trust preferred securities and debentures at December 31, 2003:

(Dollars in thousand)
	Issuance		Preferred		Debentures		Rate	Initial			Rate at
Issuance Trust	Date		security amount		amount		Type	Rate			12/31/03
Nara Bancorp Capital Trust I		3/28/2001	$	10,000,000	$	10,400,000	Fixed		10.18	%		10.18	%
Nara Statutory Trust II		3/26/2002		8,000,000		8,248,000	Variable		5.59	%		4.77	%
Nara Capital Trust III		6/5/2003		5,000,000		5,155,000	Variable		4.44	%		4.32	%
Nara Statutory Trust IV		12/22/2003		5,000,000		5,155,000	Variable		4.02	%		4.02	%
Nara Statutory Trust V		12/17/2003		10,000,000		10,310,000	Variable		4.12	%		4.12	%

F-22

The first offering was completed on March 28, 2001 and raised $10,000,000 through Trust I, as part of a pooled offering with several other financial institutions. The trust preferred securities bear a 10.18% per annum fixed rate of interest payable semiannually for a 30-year term. The Company incurred $344,000 in issuance costs, which are being amortized over the term of these securities.

The second offering was completed on March 26, 2002 and raised $8,000,000 through Trust II, as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 26, June 26, September 26 and December 26 during the 30-year term based on the three-month London Interbank Offered Rate plus 3.60% and paid quarterly. For the period beginning on September 26, 2003 to December 25, 2003, the interest rate on the trust preferred securities was 4.74%, paid on December 26, 2003. For the period beginning on December 26, 2003 to March 25, 2004, the trust preferred securities bear the interest rate of 4.77% per annum. However, prior to March 26, 2007, the interest rate cannot exceed 11.0%. The Company incurred $271,000 on issuance costs, which are being amortized over the term of these securities.

The third offering was completed on June 5, 2003 and raised $5,000,000 through Trust III, as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 15, June 15, September 15 and December 15 during the 30-year term based on the three-month London Interbank Offered Rate plus 3.15% and paid quarterly. For the period beginning on September 15 to December 14, 2003, the interest rate on the trust preferred securities was 4.29%, paid on December 15, 2003. For the period beginning on December 15, 2003 to March 15, 2004, the trust preferred securities bear the interest rate of 4.32% per annum.

The fourth offering was completed on December 22, 2003 and raised $5,000,000 through Trust IV, as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 22, June 22, September 22 and December 22 during the 30-year term based on the three-month London Interbank Offered Rate plus 2.85% and paid quarterly. For the period beginning on December 22, 2003 and January 7, 2004, the trust preferred securities bear the interest rate of 4.02% per annum.

The fifth offering was completed on December 17, 2003 and raised $10,000,000 through Trust V, as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 17, June 17, September 17 and December 17 during the 30-year term based on the three-month London Interbank Offered Rate plus 2.95% and paid quarterly. For the period beginning on December 17, 2003 and March 16, 2004, the trust preferred securities bear the interest rate of 4.17% per annum.

Prior to the issuance of FIN No. 46R, the five wholly-owned grantor trusts were considered consolidated subsidiaries of Bancorp; the $18 million of preferred securities as of December 31, 2002 were included in the consolidated balance sheet, under the caption “Trust preferred securities,” and the retained common capital securities of the grantor trusts were eliminated against the Company’s investment in the issuer trusts. Distributions on the preferred securities were recorded as interest expense in the consolidated statements of income.

With the adoption of FIN No. 46R, Bancorp deconsolidated the five grantor trusts. As a result, the junior subordinated debentures issued by Bancorp to the grantor trusts, totaling $39.3 million, are reflected in the consolidated balance sheet in the liabilities section at December 31, 2003, under the caption “junior

F-23

	subordinated debentures.” The Company also recorded $2 million in other assets in the consolidated balance sheet at December 31, 2003 for the common capital securities issued by the issuer trusts. Prior years have been reclassified to conform to the current year presentation.
	On July 2, 2003, the Federal Reserve Bank issued Supervisory Letter SR 03-13 clarifying that Bank Holding Companies should continue to report trust preferred securities in accordance with current Federal Reserve Bank instructions which allows trust preferred securities to be counted in Tier 1 capital subject to certain limitations. The Federal Reserve has indicated it will review the implications of any accounting treatment changes and, if necessary or warranted, will provide appropriate guidance.
10.	INCOME TAXES
	A summary of income tax provision (benefit) follows for the years ended December 31:

	Current			Deferred			Total
2003:
Federal	$	8,451,634		$	(2,044,063	)	$	6,407,571
State		3,198,101			(739,397	)		2,458,704
	$	11,649,735		$	(2,783,460	)	$	8,866,275
2002:
Federal	$	4,988,178		$	(33,418	)	$	4,954,760
State		2,107,418			(285,418	)		1,822,000
	$	7,095,596		$	(318,836	)	$	6,776,760
2001:
Federal	$	5,130,152		$	(766,908	)	$	4,363,244
State		(24,813	)		1,978,013			1,953,200
	$	5,105,339		$	1,211,105		$	6,316,444

F-24

The federal and state deferred tax assets (liabilities) are as follows as of December 31:

2003	Federal			State			Total
Statutory bad debt deduction less than financial statement provision	$	4,364,757		$	1,301,781		$	5,666,538
Net operating loss carryforward		3,549,009			67,371			3,616,380
Tax depreciation less than financial statement depreciation		(359,015	)		(7,321	)		(366,336	)
FHLB stock dividends		(116,424	)		(26,219	)		(142,643	)
Accrued compensation		247,111			87,915			335,026
Nonaccrual interest		110,240			37,231			147,471
Deferred compensation		337,862			120,201			458,063
Loan charge-offs		136,248			48,473			184,721
Mark to market on loans held for sale		171,155			60,726			231,881
Amortization of intangibles		349,150			78,344			427,494
Unrealized gain on securities available for sale, interest-only strip and interest rate swap		57,354			20,265			77,619
State taxes deferred and other		151,190			104,932			256,122
	$	8,998,637		$	1,893,699		$	10,892,336

2002	Federal			State			Total
Statutory bad debt deduction less than financial statement provision	$	1,860,478		$	388,234		$	2,248,712
Net operating loss carryforward		2,544,067			67,371			2,611,438
Tax depreciation less than financial statement depreciation		168,612			90,136			258,748
FHLB stock dividends		(44,806	)		(16,671	)		(61,477	)
Accrued compensation		210,733			78,410			289,143
Nonaccrual interest		145,220			54,034			199,254
Deferred compensation		309,153			115,030			424,183
Loan charge-offs		136,248			50,696			186,944
Mark to market on loans held for sale		158,495			58,852			217,347
Other real estate owned		2,666			992			3,658
Unrealized gain on securities available for sale, interest-only strip and interest rate swap		(1,363,252	)		(278,664	)		(1,641,916	)
State taxes deferred and other		172,667						172,667
	$	4,300,281		$	608,420		$	4,908,701

A reconciliation of the difference between the federal statutory income tax rate and the effective tax rate is shown in the following table for the years ended December 31:

F-25

	2003			2002			2001
Statutory tax rate		35	%		35	%		35	%
State taxes—net of federal tax benefits		6			5			7
Negative goodwill amortization								(3	)
Other		(3	)		(3	)		(2	)
		38			37			37
Cumulative effect of a change in accounting principle					(7	)
		38	%		30	%		37	%

	At December 31, 2003 and 2002, the Company had federal net operating loss carryforwards relating to the Bank’s ownership change that occurred on July 15, 1994 of approximately $498,000 and $581,000, respectively, which will expire through 2009. For the year ended December 31, 2003 and 2002, California suspended the utilization of net operating loss of approximately $622,000, which will expire through 2011. Also, at December 31, 2003 and 2002, the Company had federal net operating loss carryforwards relating to the purchase of KFBNY that occurred on February 25, 2000, approximating $6,191,000 and $6,688,000, respectively, which will expire through 2019. Due to the ownership change in 1994 and 2000 and the acquisition of KFB, the annual limitation that can be utilized to offset future taxable income approximates $83,000 and $497,000, respectively. During 2003, the Company also had federal and state net operating loss carryforwards relating to the purchase of Asiana Bank that occurred on August 25, 2003, approximating $3.5 million and $1.9 million, respectively, which will expire through 2013 and 2009, respectively.
	For state purposes, the Bank will no longer be allowed to determine a tax reserve for bad debts based upon prior loss history. During 2002, California laws conformed to federal law and will no longer allow large bank to deduct bad debts until they actually become worthless. Banks would be able to charge off only actual losses, rather than deducting reserves. Due to the changes in state law, the prior year deferred state tax liability changed to a deferred state tax asset in the current year. As of December 31, 2003 and 2002, the net changes in state deferred were approximately $680,000 and $285,000, respectively.
11.	STOCKHOLDERS’ EQUITY
	In August 2000, the Company raised additional capital of $6,900,000 through the issuance of 350,000 units, with each unit consisting of four shares of common stock plus a fully vested, immediately exercisable warrant to purchase an additional share of common stock. The warrant is a three-year warrant to purchase a share of common stock at a price of $11, if exercised within one year, $12 if exercised after one and within two years and $13 if exercised after two and within three years, from the date of grant. The exercise price was above the fair market value of the common stock at the date of grant. At December 31, 2003, no warrants were outstanding. At December 31, 2002, 113,250 warrants were outstanding.
	The Company adopted a stock option plan in 1989 that was replaced by the Year 2000 Long Term Incentive Plan, under which options may be granted to key employees and directors of the Company. Options are exercisable in installments, which need not be equal, as shall be determined at the time of grant. Option prices may not be less than the fair market value at the date of grant. The Company authorized a total of 1,400,000 shares under the Year 2000 Long Term Incentive Plan as of December 31, 2003. The Company issued a total of 600,000 shares under this plan as of December 31, 2003. After 10 years from grant, all unexercised options will expire.

F-26

Activity in the stock option plans is as follows for the years ended December 31:

	2003					2002					2001
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Number			Price		Number			Price		Number			Price
	of Shares			per Share		of Shares			per Share		of Shares			per Share
Options outstanding, beginning of year		1,035,282		$	4.82		961,644		$	3.93		846,278		$	2.34
Options granted		860,000			17.30		120,000			11.50		220,000			9.25
Options forfeited		(20,000	)		17.30		(15,008	)		4.29
Options exercised		(388,720	)		3.73		(31,354	)		3.21		(104,634	)		2.27
Options outstanding, end of year		1,486,562			12.16		1,035,282			4.82		961,644			3.93
Options exercisable at year-end		457,232			3.57		743,610			2.86		668,236			2.21

	December 31, 2003
	Options Outstanding					Options Exercisable
			Weighted-
			Average	Weighted-				Weighted-
			Remaining	Average				Average
Range of	Number		Contractual	Exercise		Number		Exercise
Exercise Prices	Outstanding		Life	Price		Outstanding		Price
$1.29–$2.57		387,904	3.5 years	$	2.56		387,904	$	2.56
$4.29		13,658	5.1 years		4.29		4,328		4.29
$8.10		32,000	8.1 years		8.10		8,000		8.10
$9.50		110,000	7.5 years		9.50		50,000		9.50
$11.50		103,000	8.4 years		11.50		7,000		11.50
$17.28		760,000	9.4 years		17.28		—		—
$17.50		80,000	9.4 years		17.50		—		—
		1,486,562	7.6 years		12.16		457,232		3.57

12.

EMPLOYEE BENEFIT PLANS

Deferred Compensation Plan—In 1996, the Company established a deferred compensation plan that permits eligible officers and directors to defer a portion of their compensation. In 2001, the Board of Directors approved and the Company established a deferred compensation plan that allows a key executive of the Company additional deferment of his compensation. The deferred compensation, together with accrued accumulated interest, is distributable in cash after retirement or termination of service. The deferred compensation liabilities at December 31, 2003 and 2002 amounted to $1,674,603 and $1,485,388, respectively, which are included in other liabilities. The Company has insured the lives of certain officers and directors who participate in the deferred compensation plan to assist in the funding of the deferred compensation liabilities. The Company is the owner and beneficiary of the insurance policies. At December 31, 2003 and 2002, the cash surrender value of these policies was $14,302,761 and $13,744,037, respectively.

F-27

	401(k) Savings Plan—In 1996, the Company established a 401(k) savings plan, which is open to all eligible employees who are 21 years old or over and have completed six months of service. The plan requires the Bank to match 100% up to 3% and 50% for additional contribution of 2% during the plan year. Employer matching will be immediately vested in full regardless of the service term. Total employer contributions to the plan amounted to approximately $250,157, $223,282 and $206,332 for 2003, 2002 and 2001, respectively.
	Employees Stock Ownership Plan (“ESOP”)—In 1996, the Company established an ESOP, which is open to all eligible employees who have completed one year of service working at least 1,000 hours. The Company contributions to the ESOP represent annual profit-sharing bonus paid to employees. Such contributions and available forfeitures are allocated to active employees based on the percentage that their compensation represents total compensation. No shares of common stock were purchased for ESOP during 2003 and 2002. The ESOP purchased 14,238 shares of common stock at $15.75 to $19.75 per share from outstanding stockholders during 2001. No contribution to ESOP was made in 2003. The Company’s contribution to the ESOP was approximately $138,000 and $279,000 for 2002 and 2001, respectively.
13.	COMMITMENTS AND CONTINGENCIES
	The Company leases its premises under non-cancelable operating leases, and at December 31, 2003, the future minimum rental commitments under these leases and other operating leases are as follows:

2004	$	3,666,490
2005		3,960,233
2006		3,665,724
2007		3,235,091
2008		2,943,657
Thereafter		16,977,745
	$	34,448,940

Rental expense recorded under such leases in 2003, 2002 and 2001 amounted to approximately $3,234,000, $2,712,000 and $2,399,000, respectively.

In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel and has taken into consideration the views of such counsel as to the outcome of the claims. In management’s opinion, the final disposition of all such claims will not have a material adverse effect on the financial position, results of operations and cash flows of the Company.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Company’s exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing properties.

F-28

Commitments at December 31, 2003 are summarized as follows:

Commitments to extend credit	$	173,547,049
Standby letters of credit		14,491,330
Other letters of credit		31,313,778

	From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims and other obligations customarily indemnified in the ordinary course of the Company’s business. The terms of such obligations vary, and, generally, a maximum obligation is not explicitly stated. Therefore, the overall maximum amount of the obligations cannot be reasonably estimated. The most significant of these contracts relate to certain agreements with the Company’s officers and directors under which the Company may be required to indemnify such persons for liabilities arising our of their employment relationship. Historically, the Company has not been obligated to make significant payment for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of December 31, 2003.
14.	FAIR VALUES OF FINANCIAL INSTRUMENTS
	The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	December 31, 2003
	Carrying		Estimated
	Amount		Fair Value
Assets:
Cash and cash equivalents	$	76,438,497	$	76,438,497
Interest-bearing deposits in other financial institutions
Securities available for sale		126,412,488		126,412,488
Securities held to maturity		2,001,493		2,148,907
Interest-only strips		521,354		521,354
Loans held for sale		3,926,885		4,415,900
Loans receivable—net		984,867,614		994,216,349
Federal Reserve Bank stock		1,263,300		1,263,300
Federal Home Loan Bank stock		4,695,400		4,695,400
Accrued interest receivable		4,718,360		4,718,360
Customers’ liabilities on acceptances		4,340,037		4,340,037
Interest rate swaps		1,822,981		1,822,981
Liabilities:
Noninterest-bearing deposits	$	325,646,661	$	325,646,661
Interest-bearing deposits		735,768,034		736,792,175
Borrowings from Federal Home Loan Bank		60,000,000		60,007,673
Accrued interest payable		3,291,150		3,291,150
Junior subordinated debentures		39,268,000		39,463,115
Bank’s liabilities on acceptances outstanding		4,340,037		4,340,037

F-29

	December 31, 2002
	Carrying		Estimated
	Amount		Fair Value
Assets:
Cash and cash equivalents	$	104,742,728	$	104,742,728
Interest-bearing deposits in other financial institutions		95,000		95,000
Securities available for sale		101,622,635		101,622,635
Securities held to maturity		2,779,618		2,926,750
Interest-only strips		273,219		273,219
Loans held for sale		6,337,519		6,736,858
Loans receivable—net		715,019,110		718,208,110
Federal Reserve Bank stock		963,465		963,465
Federal Home Loan Bank stock		3,783,400		3,783,400
Accrued interest receivable		4,195,498		4,195,498
Customers’ liabilities on acceptances		5,580,838		5,580,838
Interest rate swaps		3,444,780		3,444,780
Liabilities:
Noninterest-bearing deposits	$	236,922,962	$	236,922,962
Interest-bearing deposits		579,995,269		580,749,415
Borrowings from Federal Home Loan Bank		65,000,000		65,011,132
Accrued interest payable		2,860,627		2,860,627
Junior subordinated debentures		18,648,000		18,797,277
Bank’s liabilities on acceptances outstanding		5,580,838		5,580,838

The following methods and assumptions were used by the Company in estimating the fair values of its financial instruments:

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

Interest-Bearing Deposits in Other Financial Institutions—The carrying amounts approximate fair value due to the short-term nature of these investments.

Investment Securities—The fair values of investment securities are generally obtained from market bids from similar or identical securities or are obtained from independent securities brokers or dealers.

Interest-Only Strips—The fair value of interest-only strips is calculated based on the present value of the excess of total servicing fees over the contractually specified servicing fee for the estimated life of loans that were sold, discounted at market rate.

Loans Held for Sale—Fair values are based on quoted market prices or dealer quotes.

Loans Receivable—To estimate the fair value of loans receivable, the portfolio was divided between loans with fixed and variable interest terms.

The fair value of loans was estimated by taking into account both credit and interest risks. Credit risk was adjusted to the loans based on the Company’s migration analysis. Interest risk was adjusted to only fixed loans, while the loans with variable interest rates were assumed to have no interest risk.

F-30

The interest risk adjustment for fixed loans was estimated by discounting the future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of nonperforming loans was not estimated because it is not practical to reasonably assess the credit adjustment that would be applied in the marketplace for such loans. The estimated fair value is net of allowance for loan losses.

Federal Reserve Bank Stock—The carrying amount approximates fair value, as the stocks may be sold back to the Federal Reserve Bank at carrying value.

Federal Home Loan Bank Stock—The carrying amount approximates fair value, as the stocks may be sold back to the FHLB at carrying value.

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

Customers’ Liabilities on Acceptances and Bank’s Liabilities on Acceptances Outstanding—The carrying amount approximates fair value due to the short-term maturities of these instruments.

Deposits—The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. Thus, the carrying amount of such deposit liabilities is a reasonable estimate of fair value. For fixed-maturity certificates of deposit, the fair value is estimated using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

Borrowings from Federal Home Loan Bank—The fair values of FHLB borrowings are estimated based on the discounted value of contractual cash flows, using rates currently offered by the FHLB for fixed-rate credit advances with similar remaining maturities.

Junior subordinated debentures—The fair values of junior subordinated debentures are estimated by discounting the cash flows through maturity based on prevailing rates offered on the 30-year Treasury bond plus the current market spread at December 31, 2003 and 2002.

Loan Commitments and Standby Letters of Credit—The fair value of loan commitments and standby letters of credit is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. At December 31, 2003 and 2002, the fair value for loan commitments and standby letters of credit is immaterial.

Interest Rate Swaps—The fair value of rate swaps are estimated by discounting the future cash flow and the discount rate that was adjusted by the yield curve.

The fair value estimates presented herein are based on pertinent information available to management at December 31, 2003 and 2002. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

F-31

15.	REGULATORY MATTERS
	The Company (on a consolidated basis) and the Bank are 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 Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
	Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum 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 that, as of December 31, 2003 and 2002, the Company and the Bank meet all capital adequacy requirements to which they are subject.
	As of December 31, 2003 and 2002, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category.
	The Company’s and the Bank’s actual capital amounts and ratios are also presented in the table below:

											To Be Well
											Capitalized under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2003:
Total capital (to risk-weighted assets):
Company	$	127,907,082		11.8	%	$	86,828,752		8.0	%		N/A		N/A
Bank	$	112,638,107		10.4	%	$	86,729,796		8.0	%	$	108,412,245		10.0	%
Tier I capital (to risk-weighted assets):
Company	$	106,632,498		9.8	%	$	43,414,376		4.0	%		N/A		N/A
Bank	$	100,167,373		9.2	%	$	43,364,898		4.0	%	$	65,047,347		6.0	%
Tier I capital (to average assets):
Company	$	106,632,498		8.8	%	$	48,255,459		4.0	%		N/A		N/A
Bank	$	100,167,373		8.3	%	$	48,256,280		4.0	%	$	60,320,350		5.0	%

F-32

											To Be Well
											Capitalized under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2002:
Total capital (to risk-weighted assets):
Company	$	86,320,686		10.7	%	$	64,585,266		8.0	%		N/A		N/A
Bank	$	89,477,956		11.1	%	$	64,789,158		8.0	%	$	80,986,448		10.0	%
Tier I capital (to risk-weighted assets):
Company	$	77,862,768		9.6	%	$	32,292,633		4.0	%		N/A		N/A
Bank	$	81,020,038		10.0	%	$	32,394,579		4.0	%	$	48,591,869		6.0	%
Tier I capital (to average assets):
Company	$	77,862,768		8.7	%	$	35,707,419		4.0	%		N/A		N/A
Bank	$	81,020,038		9.3	%	$	35,011,024		4.0	%	$	43,763,780		5.0	%

The Company may not pay dividends or make any other capital distribution if, after making the distribution, the Company would be undercapitalized. Based on the current financial status of the Company, the Company believes that such limitations and restrictions will not impair the Company’s ability to continue to pay dividends.

Under federal banking law, dividends declared by the Company in any calendar year may not, without the approval of the OCC, exceed its net income for that year combined with its retained income from the preceding two years. However, the OCC has previously issued a bulletin to all national banks outlining guidelines limiting the circumstances under which national banks may pay dividends even if the banks are otherwise statutorily authorized to pay dividends. The limitations impose a requirement or in some cases suggest that prior approval of the OCC should be obtained before a dividend is paid if a national bank is the subject of administrative action or if the payment could be viewed by the OCC as unsafe or unusual.

As a result of a regulatory examination by the OCC in 2002, the Bank stipulated and consented, without any admission of wrongdoing, to the issuance of a Consent Order (the “Order”) by the OCC. The Order addresses the OCC’s findings of weakness noted during its examination of the Bank as they relate to compliance with the Bank Secrecy Act (“BSA”). Such Order was effective on February 20, 2002. The violations of BSA rules and regulations and other BSA weaknesses asserted by the OCC (including the failure to make required reports) were determined by the OCC to be the result of deficiencies in the Bank’s BSA program. The Order requires, among other matters, the Bank to enhance its management information systems for monitoring and making reports of suspicious activity required by applicable rules and regulations, develop and implement written policies to ensure compliance with BSA as well as an audit program to test compliance with BSA, provide appropriate training to Bank personnel, and ensure diligent management and Board of Director oversight of the Bank’s BSA Compliance Program and activities. The OCC terminated the Order effective January 22, 2003.

F-33

16.	EARNINGS PER SHARE
	EPS information is as follows for the years ended of December 31:

	Income		Shares		Per Share
2003	(Numerator)		(Denominator)		Amount
Basic EPS	$	14,313,153		11,027,945	$	1.30
Effect of dilutive securities:
Options				491,791
Warrants				32,605
Diluted EPS	$	14,313,153		11,552,341	$	1.24
2002
Before Cumulative Effect of a Change in Accounting Principle
Basic EPS	$	11,303,438		10,960,286	$	1.03
Effect of dilutive securities:
Options				461,365
Warrants				66,822
Diluted EPS	$	11,303,438		11,488,473	$	0.98
Cumulative Effect of a Change in Accounting Principle
Basic EPS	$	4,192,334		10,960,286	$	0.38
Effect of dilutive securities:
Options				461,365
Warrants				66,822
Diluted EPS	$	4,192,334		11,488,473	$	0.37
After Cumulative Effect of a Change in Accounting Principle
Basic EPS	$	15,495,772		10,960,286	$	1.41
Effect of dilutive securities:
Options				461,365
Warrants				66,822
Diluted EPS	$	15,495,772		11,488,473	$	1.35
2001
Basic EPS	$	10,783,529		11,027,826	$	0.98
Effect of dilutive securities:
Options				533,928
Warrants				91,118
Diluted EPS	$	10,783,529		11,652,872	$	0.93

F-34

17.	DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
	The Company has entered into interest rate swap agreements as summarized below. Under these agreements, the Company receives a fixed rate and pays a floating rate. The interest rate swaps qualify as cash flow hedges for accounting purposes, and effectively fix the interest rate paid on $140,000,000, as of December 31, 2003, of variable rate loans indexed to Prime. As of December 31, 2003, the amounts in accumulated OCI associated with these cash flows totaled $780,530 (net of tax of $520,354), of which $176,412 is expected to be reclassified into interest income within the next 12 months. As of December 31, 2003, the maximum length of time over which the Company is hedging its exposure to the variability of future cash flows is approximately 9 years.
	Interest rate swaps information at December 31, 2003 is summarized as follows:

Current Notional	Floating	Fixed			Maturity		Unrealized			Realized
Amount	Rate	Rate			Date		Gain (Loss)			Gain (Loss)1
$20,000,000	H.15 Prime2		6.95	%		4/29/2005	$	562,298		$	12,118
20,000,000	H.15 Prime2		7.59	%		4/30/2007		945,386			62,704
20,000,000	H.15 Prime2		6.09	%		10/09/2007		—			45,958
20,000,000	H.15 Prime2		6.58	%		10/09/2009		(104,741	)		(79,338	)
20,000,000	H.15 Prime2		7.03	%		10/09/2012		(322,991	)		(92,206	)
20,000,000	H.15 Prime2		5.60	%		12/17/2005		177,889			46,540
10,000,000	H.15 Prime2		6.32	%		12/17/2007		43,043			48,446
10,000,000	H.15 Prime2		6.83	%		12/17/2009		—			35,899
$140,000,000							$	1,300,884		$	80,121

1.	Gain included in the consolidated statement of income in 2003, representing hedge ineffectiveness.
2.	Prime rate is based on Federal Reserve statistical release H.15

Interest incomes received from the swap counterparties were $3,432,139 and $990,213 for 2003 and 2002, respectively. No interest rate swaps was held 2001.

At December 31, 2003, the Company pledged as collateral to the interest rate swap counterparty agency securities with a book value of $2,000,000 and $2,600,000 in real estate loans with an outstanding principal balance of $2.0 million.

F-35

18.	QUARTERLY FINANCIAL DATA (Unaudited)
	Summarized unaudited quarterly financial data follows for the three months ended:

	March 31		June 30		September 30		December 31
	(In thousands, except per share amounts)
2003
Interest income	$	13,941	$	15,106	$	15,576	$	16,802
Interest expense		4,069		4,083		3,927		3,855
Net interest income before provision for credit losses		9,872		11,023		11,649		12,947
Provision for credit losses		1,300		1,100		1,350		1,635
Non-interest income		4,864		4,839		5,179		5,496
Non-interest expense		8,280		9,092		9,416		10,517
Income before income tax provision		5,156		5,670		6,062		6,291
Income tax provision		1,919		2,254		2,358		2,335
Net income	$	3,237	$	3,416	$	3,704	$	3,956
Basic earnings per common share	$	0.30	$	0.32	$	0.33	$	0.34
Diluted EPS	$	0.29	$	0.30	$	0.32	$	0.33
2002
Interest income	$	10,402	$	11,962	$	12,738	$	13,469
Interest expense		2,964		3,154		3,508		3,838
Net interest income before provision for credit losses		7,438		8,808		9,230		9,631
Provision for credit losses		350		600		400		1,336
Non-interest income		3,706		4,151		4,527		5,617
Non-interest expense		7,301		7,972		8,292		8,776
Income before income tax provision		3,493		4,387		5,065		5,136
Income tax provision		1,280		1,545		1,956		1,996
Income before cumulative effect of a change in accounting principle		2,213		2,842		3,109		3,140
Cumulative effect of a change in accounting principle		4,192
Net income	$	6,405	$	2,842	$	3,109	$	3,140
Basic EPS before cumulative effect of a change in accounting principle	$	0.20	$	0.26	$	0.28	$	0.29
Diluted EPS before cumulative effect of a change in accounting principle	$	0.19	$	0.24	$	0.27	$	0.28
Basic EPS after cumulative effect of a change in accounting principle	$	0.58	$	0.26	$	0.28	$	0.29
Diluted EPS after cumulative effect of a change in accounting principle	$	0.56	$	0.24	$	0.27	$	0.28

F-36

19.	BUSINESS SEGMENT INFORMATION
	The Company segregates its operations into three primary segments: Banking Operations, Trade Finance Services (“TFS”) and Small Business Administration Lending Services (“SBAL”). The Company determines the operating results of each segment based on an internal management system that allocates certain expenses to each segment.
	Banking Operations—The Company provides lending products, including commercial installment and real estate loans, to its customers.
	Trade Finance Services—The TFS department allows the Company’s import/export customers to handle their international transactions. Trade finance products include the issuance and collection of letters of credit, international collection and import/export financing.
	Small Business Administration Lending Services—The SBAL department provides customers of the Company access to the U.S. SBA guaranteed lending program.

	Business Segment
	Banking
	Operations		TFS		SBA		Company
	(Dollars in Thousands)
2003
Net interest income	$	35,118	$	4,521	$	5,852	$	45,491
Less provision for loan losses		3,610		805		970		5,385
Non-interest income		12,007		2,833		5,538		20,378
Net revenue		43,515		6,549		10,420		60,484
Non-interest expense		28,960		4,427		3,918		37,305
Earnings before taxes	$	14,555	$	2,122	$	6,502	$	23,179
Goodwill	$	1,909	$		$		$	1,909
Total assets	$	981,306	$	97,442	$	181,280	$	1,260,028
2002
Net interest income	$	27,832	$	3,155	$	4,120	$	35,106
Less provision for loan losses		2,393		83		210		2,686
Non-interest income		11,193		2,817		3,991		18,001
Net revenue		36,632		5,889		7,901		50,421
Non-interest expense		25,593		3,776		2,972		32,341
Earnings before taxes	$	11,039	$	2,113	$	4,929	$	18,081
Goodwill	$	875	$		$		$	875
Total assets	$	779,715	$	67,835	$	132,934	$	980,484

F-37

	Business Segment
	Banking
	Operations		TFS		SBA		Company
	(Dollars in Thousands)
2001
Net interest income	$	24,337	$	2,120	$	4,433	$	30,890
Less provision for loan losses		565		115		70		750
Other operating income		11,595		1,637		2,092		15,324
Net revenue		35,367		3,642		6,455		45,464
Other operating expenses		25,077		1,568		1,719		28,364
Earnings before taxes	$	10,290	$	2,074	$	4,736	$	17,100

20.	CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
	The following presents the unconsolidated financial statements of only the parent company, Nara Bancorp, Inc., as of December 31:
	STATEMENTS OF FINANCIAL CONDITION

	2003		2002
ASSETS:
Cash and cash equivalents	$	15,880,431	$	—
Other assets		2,191,428		1,235,245
Investment in subsidiaries		106,876,819		85,939,092
TOTAL ASSETS	$	124,948,678	$	87,174,337
LIABILITIES:
Due to bank	$		$	2,548,652
Other borrowings		39,268,000		18,648,000
Accounts payable and other liabilities		683,806		608,618
Total liabilities		39,951,806		21,805,270
STOCKHOLDERS’ EQUITY		84,996,872		65,369,067
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	124,948,678	$	87,174,337

STATEMENTS OF INCOME

	2003			2002			2001
Interest expense	$	(1,550,806	)	$	(1,360,545	)	$	(771,983	)
Other operating income		8,491
Other operating expense		(661,562	)		(396,106	)		(382,632	)
Equity in net earnings of subsidiaries		16,517,030			17,252,423			11,938,144
Net income	$	14,313,153		$	15,495,772		$	10,783,529

F-38

STATEMENTS OF CASH FLOWS

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,313,153		$	15,495,772		$	10,783,529
Adjustments to reconcile net income to net cash used in operating activities:
Increase in other assets		(956,183	)		(500,327	)		(734,918	)
Increase in accounts payable and other liabilities		360,919			(42,819	)		126,754
Equity in net earnings of subsidiaries		(16,517,030	)		(17,252,423	)		(11,938,144	)
Net cash used in operating activities		(2,799,141	)		(2,299,797	)		(1,762,779	)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings from the Bank					2,548,652
Repayment to the Bank for borrowings		(2,548,652	)
Dividend received from the Bank		1,000,000
Proceeds from the issuance of junior subordinated debentures		20,620,000			8,248,000			10,400,000
Proceeds from exercise of stock options		1,448,898			100,609			237,085
Proceeds from exercise of warrants		342,025			725,850			637,425
Payments made for stock repurchase					(6,363,607	)
Payments of cash dividend		(2,182,699	)		(1,648,685	)		(822,753	)
Cash injection to Nara Bank					(10,000,000	)
Net cash (used in) provided by financing activities		18,679,572			(6,389,181	)		10,451,757
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		15,880,431			(8,688,978	)		8,688,978
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR					8,688,978
CASH AND CASH EQUIVALENTS, END OF YEAR	$	15,880,431		$	—		$	8,688,978

21.	SUBSEQUENT EVENTS
	On March 11, 2004, the Company’s Board of Directors declared a dividend of $0.05 per common share for the first quarter of 2004, which is payable on April 12, 2004, to stockholders of record on March 31, 2004.
	On March 9, 2004, the Company signed a Purchase and Assumption Agreement with Interchange Bank, a New Jersey chartered bank, for the purchase of the Hackensack branch of Interchange Bank. Upon closing of this transaction, the Company will assume approximately $1.5 million in deposits and no loans. The transaction is expected to close during the second quarter of 2004 and is subject to normal closing conditions.

* * * * * *

F-39

EX-10.20

                                                                   EXHIBIT 10.20

                               INDEX TO THE LEASE

PARAGRAPH

         LEASE SUMMARY

1.       PREMISES

         1.1      Lease of Premises
         1.2      Rentable Area

2.       TERM

         2.1      Effective Date
         2.2      Term
         2.3      Commencement Date
         2.4      Delivery of Premises
         2.5      Notice of Commencement Date
         2.6      Option to Extend

3.       RENT

         3.1      Payment of Rental
         3.2      Other Assessments
         3.3      Special Charges for Special Services
         3.4      Definition of Rent
         3.5      Late Charge and Interest
         3.6      Acceleration of Rental Payments
         3.7      Disputes as to Payment of Rent
         3.8      Rental Abatement

4.       ADJUSTMENTS TO RENT

         4.1      Operating Expense Adjustment
         4.2      Procedures for Payment of Operating Expense Adjustment
         4.3      Defined Terms
         4.4      Review of Operating Expenses

5.       SECURITY DEPOSIT

6.       USE

         6.1      Exclusive Use
         6.2      Restriction on Use
         6.3      Compliance by Other Tenants
         6.4      Hazardous Material

7.       ALTERATIONS AND IMPROVEMENTS

         7.1      Tenant's Right to Make Alterations
         7.2      Installation of Alterations
         7.3      Tenant Improvements
         7.4      Tenant's Extra Improvements

8.       TENANT'S REPAIRS

9.       NO LIENS

10.      LANDLORD'S REPAIRS

         10.1     Scope of Landlord's Repairs
         10.2     Landlord's Right to Entry to Make Repairs

11.      BUILDING SERVICES

         11.1     Standard Building Services
         11.2     Additional Services



         11.3     Landlord's Right to Cease Providing Services

12.      ASSIGNMENT AND SUBLETTING

         12.1     Right to Assign or Sublease
         12.2     Procedure for Assignment or Sublease
         12.3     Conditions Regarding Consent to Sublease and Assignment
         12.4     Affiliated Companies/Restructuring of Business Organization
         12.5     Landlord's Right to Assign

13.      REPRESENTATION AND WARRANTIES

14.      INDEMNIFICATION; INSURANCE

         14.1     Indemnification
         14.2     Insurance
         14.3     Assumption of Risk
         14.4     Allocation of Insurance Risks/Subrogation

15.      DAMAGE OR DESTRUCTION

         15.1     Loss Covered By Insurance
         15.2     Loss Not Covered By Insurance
         15.3     Loss Caused By Tenant or Tenant's Employees
         15.4     Destruction During Final Year
         15.5     Destruction of Tenant's Personal Property, Tenant Improvements
                  or Tenant's Extra Improvements
         15.6     Exclusive Remedy

16.      EMINENT DOMAIN

         16.1     Permanent Taking -- When Lease Can Be Terminated
         16.2     Permanent Taking -- When Lease Cannot Be Terminated
         16.3     Temporary Taking
         16.4     Exclusive Remedy
         16.5     Release Upon Termination

17.      DEFAULTS

         17.1     Default by Tenant
         17.2     Default by Landlord

18.      LANDLORD'S REMEDIES AND RIGHTS

         18.1     Termination of Lease
         18.2     Right Not to Terminate
         18.3     Right of Re-Entry
         18.4     Waiver of Redemption
         18.5     Right to Perform
         18.6     Remedies Not Exclusive

19.      ATTORNEY'S FEES

20.      SUBORDINATION

         20.1     Obligations of Tenant
         20.2     Attornment by Tenant
         20.3     Attorney-In-Fact

21.      RULES AND REGULATION

22.      HOLDING OVER

         22.1     Surrender of Possession
         22.2     Payment of Money after Termination

23.      INSPECTIONS AND ACCESS



24.      NAME OF BUILDING AND PROJECT

25.      SURRENDER OF LEASE

26.      WAIVER

27.      SALE BY LANDLORD

28.      NO LIGHT AND AIR EASEMENT

29.      FORCE MAJEURE

30.      ESTOPPEL CERTIFICATES

31.      PARKING FACILITIES

32.      SECURITY SERVICE

         32.1     Landlord's Right to Furnish Security Systems
         32.2     Tenant's Right to Install Security System

33.      NOTICES

34.      OPTION AND RIGHT OF FIRST REFUSAL TO PURCHASE

         34.1     Option to Purchase
         34.2     Exercise of Option
         34.3     Purchase Price
         34.4     Mortgage Liens
         34.5     Right of First Refusal to Purchase
         34.6     Exercise of Purchase Right
         34.7     Delivery of Building
         34.8     Recordation
         34.9     Termination of Rights

35.      RIGHT OF FIRST REFUSAL TO LEASE

         35.1     Right of First Refusal
         35.2     Exercise of Right
         35.3     Delivery of Expansion Space and/or Expansion Floor
         35.4     Rent
         35.5     Amendment of Lease

36.      RIGHT TO TERMINATE LEASE

         36.1     Termination Right
         36.2     Exercise of Right
         36.3     Payment
         36.4     Termination of Right

37.      CLEANING

38.      MISCELLANEOUS

         38.1     Authorization to Sign Lease
         38.2     Entire Agreement
         38.3     Severability
         38.4     Covenants and Conditions
         38.5     Gender and Headings
         38.6     Successors and Assigns
         38.7     Governing Law
         38.8     Exhibits
         38.9     Modification for Lender
         38.10    Transportation System Management Program



         38.11             Quiet Enjoyment
         38.12             No Recordation
         38.13             Time is of the Essence
         38.14             Cumulative Remedies
         38.15             Nondiscrimination and Nonsegregation
         38.16             Survival
         38.17             Confidentiality
         38.18             Broker and Commission

EXHIBITS

         Exhibit A         -        Building and Project
         Exhibit B         -        Premises
         Exhibit C         -        Rules and Regulations
         Exhibit D         -        Estoppel Certificate
         Exhibit E         -        Notice of Lease Term Dates
         Exhibit F         -        Landlords Work
         Exhibit G         -        Signage



         This LEASE AGREEMENT (the "Lease"), dated this 4th day of September
2003, is made and entered into by and between Joseph J. Cho, an individual
("Landlord"), and Nara Bank, a National Association ("Tenant").

                                  LEASE SUMMARY

1.       Project Address: 1709 S. Nogales Street, Rowland Heights, California,

2.       Premises: approximately 3,701.9 gross rentable square feet of space on
         the ground floor of a new building to be constructed at the southwest
         corner of Nogales Road and Colima road, Rowland Heights, California, as
         marked on Exhibit "B." The Premises are a part of a building (the
         "Building"), as shown on Exhibit "A."

         Gross Rentable Area of the Premises: Approximately 3,701.9 square feet.
         Gross Rentable Area of the Building: Approximately 12,343.5 square
         feet.

3.       Rental: Twelve Thousand and Thirty One Dollars and Eighteen Cents
         ($12,031.18), which equates to Three Dollars and Twenty Five Cents per
         square foot ($3.25/s.f.) per month for the first 24 months of the
         initial Term; Twelve Thousand Five Hundred and Twelve Dollars and Forty
         Three Cents ($12,512.43) per month commencing on the twenty fifth
         (25th) month and continuing up to and including the thirty sixth (36th)
         month of the Initial Term; Twelve Thousand Seven Hundred and Sixty Two
         Dollars and Sixty Eight Cents ($12,762.68) commencing on the thirty
         seventh (37th) month and continuing up to and including the forty
         eighth (48th) month of the initial Term; and Thirteen Thousand and
         Seventeen Dollars and Ninety Three Cents ($13,017.93) per month
         commencing on the forty ninth (49th) month and continuing up to and
         including the sixtieth (60th) month of the Initial Term subject to
         Paragraph 4.1 below.

         Upon Tenant's exercise of its option to extend the term of the Lease
         under the provisions of Paragraph 2.6 of the Lease and commencing on
         the first month immediately following the expiration of the Initial
         Term of the Lease, the Rental shall be increased by two percent (2%)
         per year each year for the duration of the Extended Term. In the event
         Tenant exercises it option to extend the Term of the Lease pursuant to
         Paragraph 2.6 of the Lease, Rental for each option term shall be the
         then current fair market rent for similar Premises in a similar
         building in the Rowland Heights Area (the "Fair Market Rent"), but in
         no event less than the amount being paid by Tenant as Rental for the
         month immediately preceding the commencement of such option term and in
         no event more than one hundred and five percent (105%) of the amount
         being paid by Tenant as Rental for the month immediately preceding the
         commencement of such option term.

         If Landlord and Tenant are unable to agree on the Fair Market Rent for
         the Premises upon the exercise of the option to extend the Term by
         Tenant, Landlord and Tenant shall each appoint an appraiser to
         determine the Fair Market Rent of the Premises. If the appraisers of
         Landlord and Tenant are unable to agree on what constitutes Fair Market
         Rent, then Landlord and Tenant shall select and appoint an independent
         third appraiser to determine the Fair Market Rent of the Premises and
         the determination of such third independent appraiser shall be final
         and binding upon the parties, but in no event shall the Fair Market
         Rent be less than the amount being paid by Tenant as Rental for the
         month immediately preceding the commencement of such option term and in
         no event more than one hundred and five percent (105%) of the amount
         being paid by Tenant as Rental for the month immediately preceding the
         commencement of such option term. Each party will be responsible for
         paying the cost and expense of their appraisal and in the event a third
         independent appraiser is selected, the parties will share, equally, in
         the cost and expense of associated with the third independent
         appraiser.

4.       Tenant's Pro Rata Share of the Building: thirty percent (30%).

5.       Estimated Commencement Date: December 1, 2003 or as soon as the
         construction is completed, but no later than the last day of February,
         2004. Tenant is a construction lender and is familiar with the
         construction schedule. Tenant shall be entitled to unilaterally
         terminate the Lease if Tenant is not given possession of the Premises
         on or before the end of February 2004. The construction will be deemed
         completed when Landlord obtains a certificate of occupancy for the

                                       1



         Premises or when Tenant is allowed access to the Premises for the
         construction of its tenant improvement work. Landlord will deliver the
         Premises in a new "vanilla shell" condition and otherwise in accordance
         with Landlord's work described on Exhibit "F" attached
         hereto and incorporated herein by this reference. All electrical,
         plumbing and other systems shall be new and sufficient to support the
         Premises. Tenant has been shown the approved plan, indicating the
         extent of Landlord's work. Tenant, within thirty (30) days following
         its possession of the Premises, shall provide a written notice to
         Landlord, describing, in detail, any and all alleged defects. If no
         written notice is timely given, Tenant shall be deemed to have been
         satisfied with, and accepted, the Premises. If a written notice is
         given, Landlord will use his best efforts to correct those undisputed
         defects within a reasonable time period. For those disputed defects,
         which are determined to be the responsibility of Landlord, Landlord
         will use his best efforts to correct them

6.       Initial Term: Five (5) years.
         Extended Term: Two (2) additional periods of Five (5) years each.

7.       Security Deposit: No security deposit.

8.       Broker(s): BankSite is acting as the exclusive agent for the Tenant.
         Brokerage commission is to be paid by Landlord in the amount of three
         percent (3%) of the scheduled based rent for the first five years of
         the initial lease term. One half of the commission is to be paid upon
         satisfaction of the contingencies, set forth hereinbelow, following the
         mutual execution of the lease, the remaining balance of the commission
         will be paid upon the Landlord's receipt of the first month rent.

9.       Use of Premises: General offices, including, without limitation,
         banking services and marketing of any other financial services or
         investment products, including insurance products.

10.      Address for Payments and Notices:

         Landlord:                               Tenant:

         Joseph Cho                              Nara Bank
         c/o Steven C. Kim & Assoc.              Attn: Ms. Myung Hee Hyun
         3731 Wilshire Blvd., Suite 910          3701 Wilshire Blvd., Suite 220
         Los Angeles, California 90010           Los Angeles, California 90010

11.      Parking Spaces: The parking lot is for use by all tenants of the
         Building on a non-exclusive basis. However, four (4) parking spaces in
         front of the Premises shall be designated exclusive for Tenant's
         customers, and three (3) parking spaces close to the front of the
         entrance to the Premises from the parking lot, shall be designated as
         thirty (30)-minute parking only, exclusive for the Tenant's customers.
         Landlord shall not be responsible for the enforcement of the exclusive
         parking.

12.      Signage: Tenant, at its sole expense, shall have the right to place its
         signs for the Premises and be permitted to erect signage in accordance
         with Landlord's sign criteria, which has already been provided to
         Tenant, a copy of which is attached hereto, and in compliance with the
         law. In addition, Tenant, with the consent of Landlord shall have the
         right to place a sign for any approved monument or pylon signs, if such
         monument or pylon signs are legally allowed. Tenant shall be entitled
         to place its signs on three designated spaces, as outlined in the sign
         criteria Exhibit G, subject to approval by the county.

13.      Contingencies: Tenant shall also be entitled to unilaterally terminate
         the Lease, in its sole and absolute discretion, with or without cause,
         on or before, September 30, 2003.

14.      Tenant Improvement: Landlord shall deliver the Premises in a new
         "vanilla shell" condition and otherwise in accordance with the
         Landlord's Work described on Exhibit "F" attached hereto and
         incorporated herein by this reference. All electrical, plumbing, and
         other systems shall be new and sufficient to support the Premises
         space. Tenant, at its sole option, may install teller

                                       2


         counters, a vault, a night depository and up to three through-the-wall
         ATMS in the Premises. Landlord grants Tenant a one-time improvement
         work allowance in the amount of six thousand five hundred dollars
         ($6,500), which amount shall be deducted by Tenant from the first
         month's rent. Upon the termination of the tenancy, the tenant
         improvement, with the exception of the teller counters, vault, night
         depository and ATMS, shall become Landlord's property. However,
         Landlord, at his sole option, may require Tenant to remove the
         improvements and restore the Premises to its original condition at
         Tenant's sole costs and expenses. Should Tenant install a vault, it
         will be Tenant's sole option whether to remove the vault. However, if
         Landlord desires to remove the vault, the cost of removal shall be
         Tenant's responsibility.

15.      Landlord and Tenant agree: [i] that Tenant is a national bank; [ii]
         that, notwithstanding any of the other provisions of the Lease, Tenant
         cannot cease to operate its business on the Premises for more than
         three (3) consecutive days; and [iii] that Landlord shall take all
         reasonable steps necessary to assure that Tenant is able to be open for
         business in compliance with such requirement.

                                       3



1.       PREMISES.

         1.1      Lease of Premises. Landlord leases to Tenant, and Tenant
leases from Landlord, the premises referred to in Section 2 of the Lease Summary
("Premises") consisting of the office space as marked on Exhibit "B", attached
hereto and incorporated herein, located in the commercial building referred to
in Section 2 of the Lease Summary ("Building") and shown on Exhibit "A" attached
hereto and incorporated herein. The building is situated on that certain legal
parcel of real property located in the City of Rowland Heights, L.A. County,
California, as more fully described on Exhibit "B" ("Land"). The Land, the
Building and any other buildings located on the Land are all a part of the
commercial project ("Project") as illustrated on Exhibit "B".

         1.2      Rentable Area. The Rentable Area of the Premises and the
Rentable Area of the Building are as specified in Section 2 of the Lease
Summary. All Rentable Area measurements in this Lease shall be made in
accordance with the American National Standard Institute Publication ANSI
265.1-1980, commonly known as the "BOMA standards."

2.       TERM.

         2.1      Effective Date. The Lease will become effective upon execution
by Landlord and Tenant and delivery to Landlord.

         2.2      Term. The term of the Lease shall be for the number of months
specified in Section 6 of the Lease Summary ("Term") beginning on the
Commencement Date (as defined in Paragraph 2.3 below).

         2.3      Commencement Date. The Term shall commence on: (a) the first
day of December 2003, or (b) if the construction of the Building is not
completed, on the date that Landlord turns over possession of the Premises to
Tenant ("Commencement Date"), but in no event later than the last day of
February 2004, subject to the requirements of Section 5 of the Lease Summary
hereinabove. Tenant may enter the Premises prior to the Commencement Date
without payment of any rental for the sole purpose of providing access to
Tenant's suppliers of telephone and computer equipment and the installers
thereof, provided that such access does not hinder or delay work to be performed
by employees or independent contractors of Landlord. Unless Landlord has [i]
engaged in willful misconduct or [ii] been negligent, Tenant hereby agrees to
indemnify and hold harmless Landlord, its directors, officers, agents and
employees from and against any and all liability, expense or damage of any kind
or nature and from any suits, claims or demands, including reasonable attorneys'
fees and expenses, on account of any matter or thing or action or failure to act
by Landlord, whether in suit or not, incurred by Landlord and arising out of,
connected with or incidental to, such access.

         2.4      Delivery of Premises. The Premises will be delivered to Tenant
when Landlord obtains a certificate of occupancy for the Premises. Tenant
understands and agrees that the Commencement Date can be significantly delayed
and that such delay shall not affect the validity of this Lease, except as
provided herein above and in Section 5 of the Lease Summary.

         2.5      Notice of Commencement Date. Landlord shall send Tenant
written notice of the occurrence of the Commencement Date in substantially the
form as in the attached Exhibit "E", which notice Tenant shall acknowledge by
executing a copy of the notice and returning it immediately to Landlord. If
Tenant fails to sign and return the notice to Landlord within thirty (30) days
of receipt, the notice as sent by Landlord shall be deemed to have correctly set
forth the Commencement Date.

         2.6      Option to Extend. Provided that (a) Tenant is not then in
material default under the Lease and (b) Tenant is then occupying the Premises
and has not assigned or subleased the Premises, Tenant shall have two (2)
separate and consecutive options to extend the Term for a period of five (5)
years each. Upon the proper and timely exercise of the option to extend (as
hereinafter provided), and provided that Tenant is not in default under this
Lease as of the end of the initial Term, the Term, as it applies to the
Premises, shall be extended for five (5) years. The option shall be exercised by
Tenant upon receipt of prior written notice by Landlord not less than six (6)
months prior to the expiration of the initial Term stating that Tenant is
exercising its option.

                                       4



3.       RENT.

         3.1      Payment of Rental. Tenant agrees to pay Landlord as monthly
rent for the Premises the sum specified in Section 3 of the Lease Summary
("Rental"), in advance, on or before the first day of each calendar month during
the Term. In addition to the payment of Rental, Tenant shall also pay an
Operating Expense Adjustment (as defined in Paragraph 4.1 below) computed
pursuant to Paragraph 4.1 below. Upon execution of the Lease, Tenant shall pay
to Landlord the sum specified in Section 3 of the Lease Summary, representing
the Rental payable hereunder for the first full calendar month of the Term. On
the Commencement Date, Tenant shall pay to Landlord the prorated Rental
attributable to the month in which the Commencement Date occurs if the
Commencement Date occurs on a date other than the first day of a calendar month.

         3.2      Other Assessments. In addition to the Rental, Tenant shall
pay, prior to delinquency, all personal property taxes, charges, rates, duties
and license fees assessed against or levied upon Tenant's occupancy of the
Premises, or upon any trade fixtures, furnishings, equipment or other personal
property contained in the Premises (collectively, "Tenant's Personal Property").

         3.3      Special Charges for Special Services. Tenant agrees to pay to
Landlord, within seven (7) days following written demand, all charges for any
services, utilities, goods or materials furnished by Landlord to Tenant at
Tenant's request which are not required to be furnished by Landlord under this
Lease without separate charge or reimbursement.

         3.4      Definition of Rent. Rental, Operating Expense Adjustment,
Taxes (as defined in Paragraph 4.7(n) below) and all other payments,
disbursements or reimbursements that Tenant is obligated to pay under the Lease
(collectively, the "Rent") constitute "rent" within the meaning of Civil Code
Section 1951(a). Any Rent payable to Landlord by Tenant for any fractional month
shall be prorated based on the actual number of days in that month. All payments
owed by Tenant under the Lease shall be paid to Landlord in lawful money of the
United States of America at the location specified in Section 10 of the Lease
Summary. All payments of Rent shall be paid by Tenant by check. All payments of
Rent shall be paid without deduction, setoff or counterclaim.

         3.5      Late Charge and Interest. Tenant acknowledges that the late
payment of Rent will cause Landlord to incur costs not contemplated by this
Lease, including administrative costs, loss of use of the overdue funds and
other costs, the exact amount of which would be impractical and extremely
difficult to ascertain. Landlord and Tenant agree that if Landlord does not
receive a payment of Rent within ten (10) days of the date that such payment is
due, Tenant shall pay to Landlord a late charge of five percent (5%) of the
overdue amount, up to a maximum amount of Five Hundred Dollars ($500.00) per
late payment per month as a late charge. In addition, if such overdue amount is
not paid within ten (10) days when due, Tenant shall pay an additional charge
computed at the Interest Rate (as defined below) on the overdue amount, from the
date payment of such amount was due until Landlord receives the overdue payment.
Acceptance of the late charge or interest by Landlord shall not cure or waive
Tenant's default, nor prevent Landlord from exercising, before or after such
acceptance, any of the rights and remedies for a default provided by this Lease
or at law. Payment of the late charge or interest is not an alternative means of
performance of Tenant's obligation to pay Rent at the times specified in this
Lease. Tenant will be liable for the late charge and interest regardless of
whether Tenant's failure to pay the Rent when due constitutes a default under
the Lease. The term "Interest Rate" shall mean the legal interest rate not to
exceed ten percent (10%) per year. Whenever interest is required to be paid
under this Lease, the interest shall be calculated from the date the payment was
due or should have been due if correctly assessed or estimated (or any
overcharge paid), until the date payment is made or the refund is paid or is
credited against Rent next due.

         3.6      Acceleration of Rental Payments. In the event a late charge
becomes payable pursuant to Paragraph 3.5 above for three (3) consecutive
installments of Rental within a twelve (12) month period, then all subsequent
Rental payments shall immediately and automatically become payable by Tenant in
advance on a quarterly basis instead of monthly.

         3.7      Disputes as to Payments of Rent. Tenant agrees to pay the Rent
required under this Lease within the time limits set forth in this Lease. In an
instance where Tenant disputes its obligations to pay all or part of the Rent
indicated on such invoice or statement, Tenant shall provide Landlord with a

                                       5



letter or notice, specifying in detail why Tenant is not required to pay all or
part of such Rent. Tenant will be deemed to have waived its right to contest any
past payment of Rent unless it has notified Landlord or alternatively filed a
lawsuit against Landlord (or when arbitration is agreed to, filed for
arbitration and has served Landlord with notice of such filing), and has served
a summons on Landlord, within one (1) year of such payment.

         3.8      [INTENTIONALLY OMITTED.]

4.       ADJUSTMENTS TO RENT.

         4.1      Operating Expense Adjustment. Tenant shall pay, in addition to
the Rental computed and due pursuant to Paragraph 3.1 above, an additional sum
as an operating expense adjustment ("Operating Expense Adjustment"). Such
additional amount shall be equal to Tenant's Pro Rata Share of the Operating
Expenses (as defined in Paragraph 4.3 below).

         4.2      Procedure for Payment of Operating Expense Adjustment. Tenant
shall pay the Operating Expense Adjustment as follows:

         a.       Commencing on the Commencement Date, Landlord shall, from time
to time by providing thirty (30) days written notice to Tenant, reasonably
estimate in advance the amounts Tenant shall owe on a monthly basis for Tenant's
Pro Rata Share of the Operating Expenses for any full or partial calendar year
of the remaining Term. In such event, Tenant shall pay such estimated amounts,
on a monthly basis, on or before the first day of each calendar month, together
with Tenant's payment of Rental. Such estimate may be reasonably adjusted from
time to time by Landlord by written notice to Tenant, and such adjustments shall
be limited to no more than 2 times per year.

         b.       Within four (4) months after the end of each calendar year
subsequent to calendar year 2003, or as soon thereafter as practicable but in no
case later than 6 months after the end of each calendar year, Landlord shall
provide a statement ("Statement") to Tenant showing: (i) the amount of actual
Operating Expenses for such calendar year and Tenant's Pro Rata Share thereof,
(ii) any amount paid by Tenant towards the Operating Expenses during such
calendar year on an estimated basis and (iii) any revised estimate of Tenant's
obligations for the Operating Expenses for the current calendar year.

         c.       If the Statement shows that Tenant's estimated payments were
less than Tenant's actual obligations for the Operating Expenses for such
calendar year, Tenant shall pay the difference to Landlord within thirty (30)
days of the receipt of such Statement. If the Statement shows an increase in
Tenant's estimated payments for the current calendar year, Tenant shall pay the
difference between the new and former estimates, for the period from January 1
of the then current calendar year up to and including the month in which the
Statement is sent.

         d.       If the Statement shows that Tenant's estimated payments
exceeded Tenant's actual obligations for the Operating Expenses, Landlord shall
credit such difference against payments of the Operating Expense Adjustment next
due. If the Term shall have expired, Tenant shall receive a refund of such
difference within forty-five (45) days after Landlord sends the Statement.

         e.       So long as Tenant's obligations hereunder are not materially
adversely affected, Landlord reserves the right to reasonably change, from time
to time, the manner or timing of the foregoing payments, by providing written
notice of the same to Tenant. No delay by Landlord in providing the Statement
(or separate statements) shall be deemed a default by Landlord or a waiver of
Landlord's right to require payment of Tenant's obligations for actual or
estimated Operating Expenses, as long as such delay does not exceed the time
period set forth in Paragraph 4.2.a above.

         f.       Tenant's obligations to pay estimated and actual amounts
towards the Operating Expenses for the final calendar year of the Term shall be
prorated to reflect the portion of such year included in the Term. Such
proration shall be made by multiplying the difference of Tenant's Pro Rata Share
of the total estimated or actual (as the case may be) Operating Expenses for
such full calendar year by a fraction, the numerator which shall be the number
of days of the Term during such calendar year, and the denominator of which
shall be three hundred sixty-five (365).

                                       6



         4.3      Defined Terms. "Tenant's Pro Rata Share" means the ratio, from
time to time, of the Rentable Area of the Premises to the Rentable Area of the
Building. Tenant's Pro Rata Share as of the Commencement Date is stipulated to
be the figure specified in Section 4 of the Lease Summary, which has been
computed using the square footage figures set forth in Section 2 of the Lease
Summary. The "Operating Expenses" are defined to be the sum of all costs,
expenses, and disbursements, of every kind and nature whatsoever, and the taxes,
incurred by Landlord in connection with the Project, or the ownership,
management, maintenance, operation, administration and repair of all or any
portion of the Building or Project, including the common areas, parking lot,
improvements and facilities thereon, including, but not limited to, the
following: (a) All utility costs not otherwise charged (pursuant to Paragraph
3.3 above) directly to Tenant or to any other tenant; (b) All wages and benefits
and costs of employees, independent contractors, or employees of independent
contractors engaged in the operation, maintenance and security of the Project;
(c) All expenses for janitorial, maintenance, security and safety services
(except for the maintenance expenses relating to the roof and structural
elements of the Building); (d) All repairs to, replacement of, and physical
maintenance of the Project, including the cost of all supplies, uniforms,
equipment, tools and materials; (e) Any license, permit and inspection fees
required in connection with the operation of the Project; (f) Any auditor's fees
for accounting provided for the operation and maintenance services; (g) Any
legal fees, costs and disbursements as would normally be incurred in connection
with the operation, maintenance and repair of the Project, other than fees that
relate to a particular tenant of the Building or the Project; (h) All reasonable
fees for management services provided by a management company or by Landlord or
an agent of Landlord, which will equal to ten percent (10%) of the Operating
Expenses, excluding the real property taxes; (l) All insurance expenses, which
shall mean all premiums and other charges paid by Landlord with respect to the
insurance of the Project, including, without limitation, the following to the
extent carried by the Landlord: (i) all risk, windstorm, hail and explosion
insurance; (ii) riot attending a strike, civil commotion, aircraft, vehicle and
smoke insurance; (iii) public liability, bodily injury and property damage
insurance; (iv) elevator insurance; (v) Workers' Compensation insurance for the
employees specified in Paragraph 4.3(b) above; (vi) boiler and machinery
insurance, sprinkler leakage, water damage, property, burglary, fidelity and
pilferage insurance on equipment and materials; (vii) loss of rent, rent
abatement, rent continuation, business interruption insurance, and similar types
of insurance; (viii) earthquake insurance; and (ix) such other insurance as is
customarily carried by operators of other comparable first-class commercial
buildings in Southern California; (m) Such other usual costs and expenses which
are paid by other landlords for the purpose of providing for the on-site
operation, servicing, maintenance and repair of first-class commercial buildings
in Southern California; and (n) All actual taxes, assessments, levies, charges,
water and sewer charges, rapid transit and other similar or comparable
governmental charges (collectively, the "Taxes") levied or assessed on, imposed
upon or attributable to the calendar year in question (a) to the Premises or the
Land, and/or (b) to the operation of the Building, including but not limited to
taxes against the Building or Land, personal property taxes or assessments
levied or assessed against Building, plus any tax measured by gross rental
received from the Building, but excluding any net income, corporate, franchise,
capital stock, estate or inheritance taxes; provided that, if at any time during
the Term there shall be levied, assessed or imposed on Landlord or the Building
by any governmental entity, any general or special, ad valorem or specific
excised capital levy or other taxes on the payments received by Landlord under
this Lease or other leases affecting the Building and/or license fee, excise or
franchise taxes measured by or based, in whole or in part, upon such payments,
and/or transfer or transaction taxes based directly or indirectly upon the
transaction represented by this Lease or other leases affecting the Building,
and/or the occupancy, use, per capita or other taxes, based directly or
indirectly upon the use or occupancy of the Premises or the Building, then all
such taxes shall be deemed to be included within the definition of the term
"Taxes." Notwithstanding the foregoing or any other provision contained herein
to the contrary, in the event the Land shall be transferred during the initial
Term, and a reassessment of Taxes imposed upon or attributable to the Land
pursuant to Proposition 13 occurs, Tenant shall not be liable for any resulting
increase in such Taxes.

         The annual amortization of costs shall be determined by dividing the
original cost of such capital expenditure by the number of years of useful life
of the capital item acquired, which useful life shall be reasonably determined
by Landlord, or by the number of years permitted by the Internal Revenue Service
for amortization, whichever is shorter. Operating Expenses shall be computed
according to the cash or accrual basis of accounting, as Landlord may elect in
accordance with standard and reasonable accounting principles employed by
Landlord.

         4.4      Review of Operating Expenses. Tenant shall have a period of
three (3) months following

                                       7



receipt of the Statement, within which to inspect, at Landlord's office during
normal business hours and upon reasonable notice, Landlord's books and records
concerning Operating Expenses for that Statement. If Tenant does not notify
Landlord within such three (3) month period of its desire to inspect, Tenant
shall be deemed to have accepted as final and determinative the amounts shown on
the Statement. If Tenant requests an audit within such three (3) month period,
then such audit shall be conducted by an accounting firm selected by Tenant and
acceptable to Landlord, which acceptance shall not be unreasonably delayed,
withheld or denied. A statement prepared by such accounting firm shall be
conclusively binding upon Landlord and Tenant. If the audit shows the actual
Operating Expenses are less than ninety five percent (95%) of the amount in the
Statement, then Landlord shall pay the cost of the audit and credit any amount
overpaid against future payments of the Operating Expense Adjustment. If the
audit shows that actual Operating Expenses are greater than or equal to ninety
five percent (95%) of the amount in the Statement, then Tenant shall pay the
cost of the audit and Tenant shall immediately pay to Landlord any amount
underpaid, if any.

5.       [INTENTIONALLY OMMITTED.]

6.       USE.

         6.1 Use. Landlord agrees not to lease any other portion of the Building
to an entity, which engages in the business of banks, savings & loan association
and savings banks. Landlord may lease other portions of the Building to all
other entities engaging in financial services, including but not limited to the
factoring business, commercial lending businesses, and mortgage lending
businesses.

         6.2 Restriction on Use. Tenant shall not do or permit to be done in or
about the Premises or Building or Project, or bring, keep or permit to be
brought or kept therein, anything which is prohibited by the Rules and
Regulations attached hereto as Exhibit "C" or which is prohibited by any
standard form fire insurance policy or which will cause a weight load or stress
on the floor or any other portion of the Premises in excess of the weight load
or stress which the floor or other portion of the Premises is designed to bear.
Landlord acknowledges that Tenant may elect to install a vault at the Premises
and Landlord hereby represents, warrants and certifies to Tenant that the floor
of the Premises will be constructed in a manner to support a vault to be
installed at the Premises by Tenant. Tenant, at Tenant's sole cost and expense,
shall comply with all laws affecting the Premises, and the requirements of any
Board of Fire Underwriters or other similar body now or hereafter instituted,
and shall also comply with any order, directive or certificate of occupancy
issued pursuant to any laws which affect the condition, use or occupancy of the
Premises, including, but not limited to, any requirements of structural changes
related to or affected by Tenant's acts, occupancy or use of the Premises.

         6.3 Compliance by Other Tenants. Landlord shall not be liable to Tenant
for any other occupant's or tenant's failure to conduct itself, , or for the
failure of all persons for whom any other occupant or tenant causes to be
present in the Building, in accordance with the provisions of this Paragraph 6.
Tenant shall not be released or excused from the performance of any of its
obligations under the Lease in the event of any such failure. Tenant shall be
responsible for all persons for whom it causes to be present in the Building and
shall be liable to Landlord for all acts of such persons.

         6.4 Hazardous Material. For the purposes of this Lease, the term
"Hazardous Material" means any chemical, substance, material, controlled
substance, object, condition, waste or combination thereof which is or may be
hazardous to human health or safety or to the environment due to its
radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity,
carcinogencity, infectiousness or other harmful or potentially harmful
properties or effects, including, without limitation, medical products,
petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls
(PCBs) and all of those chemicals, substances, materials, controlled substances,
objects, conditions, wastes or combinations thereof which are now or become in
the future listed, defined or regulated in any manner by any federal, state or
local law based upon, directly or indirectly, such properties or effects. The
term "Hazardous Material" shall exclude small amounts of cleaning fluids, inks,
toners, etc, that may be used by Tenant or its agents in the normal course of
its business.

         Tenant hereby represents, warrants and covenants that: Tenant's
business operations in the Premises do not involve the use, storage or
generation of Hazardous Material; Tenant shall not cause or permit any Hazardous
Material to be brought upon, stored, manufactured, generated, blended, handled,

                                       8



recycled, disposed of, used or released on, in, under or about the Premises,
Building or Project by Tenant or Tenant's agents, employees, contractors,
subtenants, assigns and invitees (collectively, "Tenant's Affiliates"); and
Tenant shall keep, operate and maintain the Premises in compliance with all, and
shall not permit the Premises to be in violation of, any federal, state or local
environmental, health and/or safety related law, decision of the courts,
ordinance, rule, regulation, code, order, directive, guideline, permit or permit
condition currently existing and as amended, enacted, issued or adopted in the
future which is applicable to the Premises (collectively, the "Environmental
Laws").

         Tenant shall indemnify, protect, defend and hold Landlord and his
partners, officers, employees, agents, lenders and each of their respective
successors and assigns (collectively, the "Indemnified Parties") harmless from
any and all claims, judgments, damages, penalties, enforcement actions, taxes,
fines, remedial actions, liabilities, losses, costs and expenses (including,
without limitation, reasonable attorneys' fees, litigation, arbitration and
administrative proceeding costs, expert and consultant fees and laboratory
costs), which arise during or after the Term in whole or in part as a result of
the presence or suspected presence of any Hazardous Material, in, on, under or
about the Premises, the Building, the surface or subsurface of the Project
and/or other adjacent properties due to Tenant's or Tenant's Affiliates'
activities, or failure to act, on or about the Project. Without limiting the
foregoing, if any Hazardous Material is found in the soil, surface or ground
water in, on, under or about the Project at any time during or after the Term,
the presence of which was caused by Tenant and/or Tenant's Affiliates, Tenant
shall, at its sole cost and expense, promptly take all actions as are necessary
to return the Project to the condition existing prior to the introduction or
release of such Hazardous Material. Such actions shall be conducted in
accordance with applicable Environmental Laws and Landlord's prior written
approval, which approval shall not be unreasonably withheld.

         Landlord shall indemnify, protect, defend and hold Tenant and its
partners, directors, officers, employees, agents, lenders and each of their
respective successors and assigns (collectively, the "Indemnified Parties")
harmless from any and all claims, judgments, damages, penalties, enforcement
actions, taxes, fines, remedial actions, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees, litigation,
arbitration and administrative proceeding costs, expert and consultant fees and
laboratory costs), which arise during or after the Term in whole or in part as a
result of the presence or suspected presence of any Hazardous Material, in, on,
under or about the Premises, the Building, the surface or subsurface of the
Project and/or other adjacent properties due to Landlord's or his Affiliates'
activities, or failure to act, on or about the Project. Without limiting the
foregoing, if any Hazardous Material is found in the soil, surface or ground
water in, on, under or about the Project at any time during or after the Term,
the presence of which was not caused by Tenant, Landlord shall, at his sole cost
and expense, promptly take all actions as are necessary to return the Project to
the condition existing prior to the introduction or release of such Hazardous
Material. Such actions shall be conducted in accordance with applicable
Environmental Laws.

7.       ALTERATIONS AND IMPROVEMENTS.

         7.1      Tenant's Rights to Make Alterations. (a) Following the
Commencement Date, Tenant, at its sole cost and expense, shall have the right
upon receipt of Landlord's written and reasonable consent, which consent shall
not be unreasonably delayed, withheld or denied, to make alterations, additions,
or improvements to the Premises provided that such alterations, additions or
improvements: (i) are normal for general office and banking use, (ii) are made
in accordance with this Paragraph 7, (iii) do not adversely affect the utility
or value of the Premises or the Building for future tenants, (iv) do not alter
the exterior appearance of the Building, (v) are not of a structural nature, and
(vi) are not otherwise prohibited under the Lease. Such alterations, additions,
and improvements to the Premises made by or for Tenant following the
Commencement Date are collectively called the "Alterations." All such
Alterations shall be made in conformity with the requirements of Paragraph 7.2
below. (b) Tenant may be permitted to make non-structural Alterations up to
Twenty Thousand Dollars ($20,000.00), without Landlord's approval or requirement
to give prior written notice, but otherwise in compliance with Paragraph 7.2, so
long as Tenant provides "as-built" documents upon completion.

         7.2      Installation of Alterations. Any Alterations installed by
Tenant during the Term shall be done in strict compliance with all of the
following:

         (a)      Other than work described in Paragraph 7.1(b) above, no such
work shall proceed without

                                       9



Landlord's prior written approval (which shall not be unreasonably withheld,
delayed or denied) of (words missing): (i) Tenant's contractor(s); (ii)
certificates of insurance from a company or companies approved by Landlord,
furnished to Landlord by Tenant's contractor, for (1) Combined Single Limit
Bodily Injury and Property Damage Insurance covering comprehensive general
liability and automobile liability, in an amount not less than One Million
Dollars ($1,000,000.00) per occurrence and endorsed to show Landlord as an
additional insured, and (2) Workers' Compensation as required by law, with all
certificates endorsed to show a waiver of subrogation by the insurer to any
claims Tenant's contractor may have against Landlord; and (iii) detailed plans
and specifications for such work;

         (b)      All such work shall be done in a first-class workmanlike
manner and in conformity with a valid building permit and/or all other permits
or licenses when and where required, (other than work described in Paragraph
7.1(b) above) copies of which shall be furnished to Landlord at least fourteen
(14) days before the work is commenced, and any work not acceptable to any
governmental authority or agency having or exercising jurisdiction over such
work, or not reasonably satisfactory to Landlord, shall be promptly replaced and
corrected at Tenant's sole cost and expense. Landlord's review and approval of
any such work is for Landlord's benefit only and shall not expose Landlord to
any liability. Other than work described in Paragraph 7.1(b) above no work shall
proceed until and unless Landlord has received at least fourteen (14) days prior
written notice that such work is to commence and Landlord shall have posted a
notice of nonresponsibility;

         (c)      Tenant shall thereafter immediately reimburse Landlord for all
expenses incurred by Landlord by reason of any faulty work done by Tenant or
Tenant's contractors, or inadequate cleanup due to such work;

         (d)      Tenant or Tenant's contractors will in no event be allowed to
make plumbing, mechanical, or electrical improvements to the Premises or any
structural modification to the Building without first obtaining Landlord's
written consent, which consent shall not be unreasonably delayed, withheld or
denied. Tenant may not make changes to, or install, acoustical or integrated
ceilings, or partitions over 5'10" in height without first obtaining Landlord's
written consent. Tenant shall select a contractor to do the work, subject to the
approval of the Landlord, which approval shall not be unreasonably delayed,
withheld or denied.

         (e)      All work by Tenant shall be scheduled through Landlord and
shall be diligently and continuously pursued from the date of its commencement
through its completion; and

         (f)      Tenant shall obtain any bonds required by Landlord pursuant to
Paragraph 9 below.

         7.3      Tenant Improvements.   See Section 14 of the Lease Summary.

         7.4       [Intentionally omitted.]

8.       TENANT'S REPAIRS.

         Tenant shall, at Tenant's sole cost and expense, keep the Premises in
good and sanitary condition and repair at all times during the Term. All damage,
injury or breakage to any part or portion of the Premises or the Building or the
Parking Facilities caused by the willful misconduct or negligent act or omission
of Tenant or Tenant's agents, contractors, employees, licensees, directors,
officers, partners, trustees, visitors or invitees (collectively, "Tenant's
Employees") shall be promptly repaired by Tenant to the satisfaction of Landlord
at Tenant's sole cost and expense and pursuant to the provisions of Paragraph
7.2 above (collectively, the "Repairs"). After reasonable notice to Tenant of
his intention to do so, Landlord may make any Repairs which are not made by
Tenant within a reasonable amount of time (except in the case of emergency when
such Repairs can be made immediately), and charge Tenant for the cost of such
Repairs. Tenant shall be solely responsible for the design and function of all
of Tenant's Improvements whether or not installed by Landlord at Tenant's
request.

                                       10



9.       NO LIENS.

         Tenant shall at all times keep the Premises, the Building and the
Project free from any liens arising out of any work performed or allegedly
performed, materials furnished or allegedly furnished or obligations incurred by
or on behalf of Tenant. Tenant agrees to indemnify and hold Landlord and the
Indemnified Parties harmless from and against any and all claims for mechanics',
materialmen's or other liens in connection with any Alterations, Repairs, or any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant. Landlord reserves the right to enter the Premises for the purpose of
posting such notices of non-responsibility as may be permitted by law or desired
by Landlord.

10.      LANDLORD'S REPAIRS.

         10.1     Scope of Landlord's Repairs. Landlord shall maintain and
repair the roof and structural elements and the common areas of the Building as
the same may exist from time to time, wear and tear which is the result of
willful misconduct or a negligently act or omission of Tenant or Tenant's
Employees. Landlord shall have no obligation to make repairs under this
Paragraph 10 until a reasonable time after receipt of written notice of the need
for such repairs has elapsed. Landlord will attempt to make repair within thirty
(30) days following his receipt of the written notice, if the repair work can be
completed within thirty (30) days.

         10.2     Landlord's Right to Entry to Make Repairs. Upon at least
twenty four (24) hours prior written notice received by Tenant, Landlord and
Landlord's Employees (as defined in Paragraph 14.1 below) shall be permitted to
enter the Premises during business hours for the purpose of making any
alterations, additions, improvements or repairs to the Premises or the Building
as Landlord may deem necessary or desirable, so long as such alterations,
additions, improvements or repairs do not disrupt or interfere with Tenant's
business. In the event of an emergency, Landlord may enter the Premises without
prior notice accompanied by a bank officer or a police or fire department
officer. In the event that Landlord's entry is not the result of Landlord's
negligence or willful misconduct, such entry shall be without liability or
compensation to Tenant.

11.      BUILDING SERVICES.

         11.1     Standard Building Services. Landlord shall furnish the
Premises with the standard services and utilities (the "Standard Services and
Utilities") offered by comparable buildings in the vicinity of the Building,
with the level of service that would be reasonably required by a branch of a
commercial bank operating in the Premises, including, without limitation, the
following services:

         (a)      Heating, ventilation, and air-conditioning ("HVAC") during the
normal business hours.

         (b)      Electricity for lighting and power of the Premises twenty-four
(24) hours each day, seven (7) days each week of the year.

         (c)      Plumbing, and water.

         (d)      Access for telephone service.

         11.2     Additional Services. Tenant agrees to immediately pay as
additional Rent on demand all reasonable charges imposed by the Landlord from
time to time for all building services and utilities supplied to or used by
Tenant at the request of Tenant in excess of or in addition to the Standard
Building Services and Utilities. Said excess and additional building services
and utilities are referred to as "Additional Services".

         11.3     Landlord's Right To Cease Providing Services. Landlord
reserves the right in its sole and absolute discretion with respect to
Subparagraph (i) below and its sole and reasonable discretion with respect to
Subparagraph (ii) below to interrupt, reduce or cease service of heating, air
conditioning, ventilation, elevator, plumbing, electrical, or telephone systems
and/or utilities to the Premises, the Building or the Project, for any or all of
the following reasons or causes: (i) any accident, emergency, governmental
regulation, or act of God, including, but not limited to, any cause set forth in
Paragraph 29 below; or (ii) the making of any emergency repairs to the Premises
or the Building until said repairs shall

                                       11



have been completed.

         No such interruption, reduction or cessation of any such building
services or utilities shall constitute an eviction or disturbance of Tenant's
use or possession of the Premises or Building, or an ejection of Tenant from the
Premises, or a breach by Landlord of any of its obligations, or render Landlord
liable for any damages, including but not limited to any damages, compensation
or claims arising from any interruption or cessation of Tenant's business, or
entitle Tenant to be relieved from any of its obligations under the Lease, or
result in any abatement of Rent unless Tenant is prevented from conducting any
business in the Premises during the period of such interruption, reduction or
cessation, in which events Tenant shall be entitled to abate its Rent, and if,
in the opinion of Landlord, such interruption, reduction, or cessation is
expected to prevent Tenant from conducting any business for more than forty five
(45) consecutive business days, Tenant, upon giving thirty (30) days advance
written notice to cure to Landlord and Landlord`s failure to cure within that
period, may terminate this Lease and be relieved of all obligations of Tenant
under this Lease, including, without limitation, the obligation to pay rent. In
the event of any such interruption, reduction or cessation, Landlord shall use
reasonable diligence to restore such service where it is within Landlord's
reasonable control to do so.

12.      ASSIGNMENT AND SUBLETTING.

         12.1     Right to Assign or Sublease. Landlord and Tenant recognize and
specifically agree that this Paragraph 12 is an economic provision, like Rent,
and that the Landlord's right to recapture the Premises and/or share in any
profits due to an assignment or sublease, was granted by Tenant to Landlord in
consideration of certain other economic concessions granted by Landlord to
Tenant. Only upon Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed, Tenant may assign its interest in this Lease
or in the Premises, or sublease all or any part of the Premises, or allow any
other person or entity to occupy or use all or any part of the Premises. Any
purported assignment or sublease without Landlord's prior written consent shall
be voidable at the election of Landlord, and shall constitute an Event of
Default (as defined in Paragraph 17.1 below). No consent to one assignment or
sublease shall constitute a waiver of the provisions of this Paragraph 12, with
respect to another assignment or sublease. Paragraph 12 shall not be applicable
in the event that Tenant has merged into, and/or acquired by, another company.

         12.2     Procedure For Assignment or Sublease. Tenant shall provide
written notice to Landlord of: (i) Tenant's intent to assign this Lease or
sublease all or any part of the Premises, (ii) the name of the proposed assignee
or sublessee, (iii) evidence reasonably satisfactory to Landlord that such
proposed assignee or sublessee is comparable in reputation, stature and
financial condition to the other tenants then leasing comparable space in the
Building, (iv) the terms of the proposed assignment or sublease, and (v) the
impact such proposed assignee or sublessee will have in the Building, including,
but not limited to, the number of parking spaces and the security services it
will require as well as any alterations and improvements it may wish to make.
Landlord shall, as soon as practicably possible, but in no event later than
thirty (30) days of receipt of such notice, and any additional information
requested by Landlord concerning the proposed assignee's or sublessee's
financial responsibility, elect one or more of the following:

         (a)      Consent to such proposed assignment or sublease;

         (b)      Refuse such consent, which refusal shall be on reasonable
grounds, including, but not limited to, the net worth, financial condition,
operating history, and general reputation of the proposed assignee or sublessee;
or

         (c)      Elect to terminate the Lease in the event of an actual
assignment without Landlord's consent, or in the case of an actual sublease
without the Landlord's Consent, terminate this Lease as to the portion of the
Premises proposed to be sublet for the proposed term of the sublease.

         12.3     Conditions Regarding Consent to Sublease and Assignment. If
Landlord so requests, Tenant shall require that the assignee or sublessee remit
directly to Landlord on a monthly basis, all Rent due to Tenant by said assignee
or sublessee. In the event that Landlord shall consent to an assignment or
sublease under the provisions of this Paragraph 12, Tenant shall pay (a)
Landlord's reasonable processing costs and reasonable attorneys' fees incurred
in giving such consent, not exceeding One

                                       12


Thousand Dollars ($1,000.00), and (b) any and all Rent due upon the payment date
therefor immediately following Tenant's receipt of notice thereof.
Notwithstanding any permitted assignment or sublease, Tenant shall at all times
remain directly, primarily and fully responsible and liable for all payments
owed by Tenant under the Lease and for compliance with all obligations under the
terms, provisions and covenants of the Lease. If for any proposed assignment or
sublease, Tenant receives money or other consideration, either initially or over
the term of the assignment or sublease, in excess of the Rental required by this
Lease, or, in the case of the sublease of a portion of the Premises, in excess
of such Rental fairly allocable to such portion, after appropriate adjustments
to assure that all other payments called for hereunder are taken into account,
Tenant shall pay to Landlord as additional Rent, fifty percent (50%) of the
excess of each such payment of money or other consideration received by Tenant
within thirty (30) days of Tenant's receipt of the same.

         12.4     Affiliated Companies/Restructuring of Business Organization.
Occupancy of all or part of the Premises by a wholly owned parent, subsidiary,
or affiliated company of Tenant shall not be deemed as assignment or sublease
provided that such parent, subsidiary or affiliated company was not formed as a
subterfuge to avoid the requirements of this Paragraph 12. If Tenant or
affiliated occupant of the Premises is a corporation, unincorporated
association, trust or general or limited partnership, then the sale, assignment,
transfer or hypothecation of any shares, partnership interest, or other
ownership interest of such entity which time to time in the aggregate exceeds
fifty one percent (51%) of the total outstanding shares, partnership interests
or ownership interests of such entity, or the dissolution, merger,
consolidation, or other reorganization of such entity, or the sale, assignment,
transfer or hypothecation of more than fifty one percent (51%) of the value of
the assets of such entity, shall be deemed an assignment subject to the
provisions of this Paragraph 12.

         12.5     Landlord's Right to Assign. Landlord shall have the right from
time to time to sell, encumber, convey, transfer, and/or assign any of its
rights and obligations under the Lease. However, such sale or transfer shall be
conditioned upon new landlord(s recognizing the Lease and Tenant`s continuing
quiet enjoyment of the Premises.

13.      REPRESENTATIONS AND WARRANTIES.

         As a material inducement to Landlord to enter into this Lease, Tenant
represents, warrants, covenants and acknowledges as follows: (a) Tenant is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California; (b) Tenant has all the necessary power and authority
to carry on its present business, to enter into this Lease and perform Tenant's
obligations thereunder in accordance with its terms; (c) The execution and
delivery of this Lease and the performance by Tenant of its obligations
hereunder will not violate or constitute an event of default under the terms or
provisions of any agreement, document or instrument to which Tenant is a party
or by which Tenant is bound; (d) Except as otherwise contained herein, there are
no representation or warranties of any kind whatsoever, express or implied, made
by Landlord; (e) Tenant is entering into this Lease and performing Tenant's
obligations thereunder in accordance with its terms in reliance upon its
Tenant's own investigation and knowledge of the Premises and the Building; (f)
Landlord has made no representations or warranties to Tenant regarding the
useability of the Premises for Tenant's intended purposes; and (g) Tenant has
been represented by competent counsel in connection with the entering into of
this Lease.

14.      INDEMNIFICATION;  INSURANCE.

         14.1     Indemnification. Tenant shall at its sole cost and expense
defend, protect, indemnify, and hold Landlord and his agents, contractors,
licensees, employees, directors, officers, partners, lenders, trustees and
invitees (collectively, the "Landlord's Employees") harmless from and against
any and all claims, arising out of or in connection with Tenant's use of the
Premises , the conduct of Tenant's business, any activity, work or things done,
permitted or allowed by Tenant in or about the Premises or the Building, the
nonobservance or nonperformance by Tenant of any statute, law, ordinance, rule
or regulation, or any willful misconduct or negligent act or omission of Tenant
or Tenant's Employees. Notwithstanding the foregoing provisions of this Section,
however, Tenant shall have no obligation to defend, protect, indemnify, or hold
Landlord or Landlord's Employees harmless for any claim, loss or damage that is
caused by or arises out of the willful misconduct or gross negligence of
Landlord or Landlord's Employees.

                                       13



         14.2     Insurance. Tenant shall have the following insurance
obligations:

         (a)      Tenant shall obtain at its sole cost and expense and keep in
full force a policy of Combined Single Limit Bodily Injury and Property Damage
Insurance protecting Landlord, Tenant, Landlord's managing agent and any
mortgagees (whose names shall have been furnished to Tenant) against any
liability arising out of Tenant's or Tenant's Employees' use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be primary for any such risk and shall be in an amount not less than Two
Million Dollars ($2,000,000.00) per occurrence. The policy shall contain
cross-liability endorsements, shall insure performance by Tenant of the
foregoing indemnity provision of the Lease. The policy shall provide for notice
of renewal to Landlord not less than sixty (60) days prior to expiration of such
policy, and shall provide for notice to Landlord of cancellation sixty (60) days
prior to said cancellation. Landlord may, upon fifteen (15) days notice to
Tenant, require an increase of the above liability limit if Landlord deems it to
be inadequate when compared to the then existing comparable office lease
practice in the area or as Landlord may reasonably require. The limits of said
insurance shall not, however, limit the liability of Tenant under Paragraph 14.1
above;

         (b)      Tenant shall maintain, at Tenant's sole cost and expense, and
with an insurance company acceptable to Landlord, on all Tenant's Personal
Property, the Tenant Improvements and Tenant's Extra Improvement, a policy of
All Risk insurance inclusive of standard fire and extended coverage insurance,
naming Landlord and Tenant as their interests may appear, with vandalism and
malicious mischief endorsements, to the extent of one hundred percent (100%) of
the full replacement value (as Tenant may reasonably determine from time to
time) of Tenant's Personal Property, and the Tenant Improvements. Landlord shall
not be required to carry insurance of any kind on Tenant's Personal Property or
the Tenant Improvements, and Landlord shall not be obligated to repair any
damage thereto or replace the same;

         (c)      Intentionally deleted.

         (d)      Tenant shall maintain Workers' Compensation and Employer's
Liability insurance as required by law;

         (e)      Tenant shall, at its sole cost and expense and with an
insurance company acceptable to Landlord, maintain any other forms of insurance
as Tenant, Landlord, the mortgagees, or the trust deed beneficiaries of Landlord
or the ground or underlying lessors of the Landlord and/or the Building may
reasonably require from time to time in form, in amounts and for insurance risks
against which a prudent tenant would protect itself; and

         (f)      Tenant shall provide Landlord, prior to the Commencement Date
and thereafter as Landlord may reasonably request, certificates issued by the
insurance company which is providing coverage, evidencing compliance with the
above insurance requirements.

         (g)      Landlord shall obtain at its sole cost and expense and keep in
full force (i) a policy of "all risk of physical loss" insurance covering the
Building in an amount of not less than 90% of the full replacement value of the
Building (excluding the land) and the costs of demolition (if available at
commercially reasonable prices) and debris removal, (ii) during any period of
construction of the Building, course of construction insurance (including, inter
alia, the Tenant Improvement work being performed by Tenant), (iii)
comprehensive general public liability insurance covering Landlord against
claims for bodily injury or death or property damage occurring in, upon, or
about the Project with an combined single limit of not less than $1,000,000.00
per occurrence, and (iv) employer's liability insurance with coverage of not
less than $1,000,000.00 and workers' compensation insurance covering Landlord's
employees in an amount not less than that required by applicable laws or
regulations. Landlord shall name Tenant and its named affiliates, if any, as
additional insureds on any and all policies of liability insurance obtained with
respect to the Project, the Building or Tenant's occupancy of the Premises. In
addition to the foregoing, Landlord shall insure against all risks and all other
hazards as are customarily insured against by others similarly situated and
developing or operating like properties.

         14.3     Assumption of Risk. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to Tenant's
Personal Property or injury to persons in and upon the Premises or the Building
from any cause (except for damage or injury caused by the gross negligence or
willful

                                       14



misconduct of Landlord) and Tenant hereby waives all such claims against
Landlord. Landlord and Landlord's Employees shall not be liable for any damage
to any of Tenant's Personal Property entrusted to Landlord or Landlord's
Employees, nor for loss or damage to any of Tenant's Personal Property by theft,
water leakage or otherwise. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building.

         14.4     Allocation of Insured Risks/Subrogation. Landlord and Tenant
release each other from any claims and demands of whatever nature for damage,
loss or injury to the Premises or the Building, or to the other's property in,
on or about the Premises or the Building, that are caused by or result from
risks or perils insured against under any insurance policies required by the
Lease to be carried by Landlord and/or Tenant and in force at the time of any
such damage, loss or injury. Landlord and Tenant shall cause each insurance
policy obtained by them or either of them to provide that the insurance company
waives all right of recovery by way of subrogation against either Landlord or
Tenant in connection with any damage covered by any policy and shall provide
each other with evidence of such appropriate endorsements. Neither Landlord nor
Tenant shall be liable to the other for any damage caused by fire or any of the
risks insured against under any insurance policy required by the Lease.

15.      DAMAGE OR DESTRUCTION.

         15.1     Loss Covered By Insurance. If, at any time prior to the
expiration or earlier termination of the Lease or any extension thereof, the
Premises or the Building or the Project are wholly or partially damaged or
destroyed by a casualty, which casualty renders the Premises totally or
partially inaccessible or unusable by Tenant in the ordinary conduct of its
business, and adequate insurance proceeds are available to Landlord, then:

         (a)      If all repairs to such Premises or Building or Project can, in
Landlord's judgment, be completed within three (3) months following the date of
notice to Landlord of such damage or destruction without the payment of overtime
or other premiums, and if such damage or destruction is not the result of the
willful misconduct or negligence of Tenant or Tenant's Employees, Landlord
shall, at Landlord's expense, repair the same and this Lease shall remain in
full force and effect and a proportionate reduction of Rental shall be allowed
Tenant for such portion of the Premises as shall be rendered inaccessible to or
unusable by Tenant during the period of time that such portion is inaccessible
or unusable; and

         (b)      If such damage or destruction is not the result of the willful
misconduct or negligence of Tenant or Tenant's Employees, and if all such
repairs cannot, in Landlord's judgment, be completed within three (3) months
following the date of notice to Landlord of such damage or destruction without
the payment of overtime or other premiums, Landlord may, at Landlord's sole and
absolute option, upon written notice to Tenant given within thirty (30) days
after notice to Landlord of the occurrence of such damage or destruction, elect
to repair such damage or destruction at Landlord's expense, and in such event,
this Lease shall continue in full force and effect but the Rental shall be
proportionately reduced as hereinabove provided in Paragraph 15.1(a) above. If
Landlord does not elect to make such repairs, then either party may, upon
written notice to the other, terminate this Lease.

         15.2     Loss Not Covered By Insurance. If, at any time prior to the
expiration or earlier termination of this Lease, the Premises or the Building or
the Project are totally or partially damaged or destroyed by a casualty, the
loss to Landlord from which is not fully covered by insurance maintained by
Landlord or for Landlord's benefit, which casualty renders the Premises
inaccessible or unusable to Tenant in the ordinary course of its business,
Landlord may, at Landlord's option, upon written notice to Tenant within thirty
(30) days after notice to Landlord of the occurrence of such damage or
destruction, elect to repair or restore such damage or destruction, elect to
repair or restore such damage or destruction, or Landlord may elect to terminate
this Lease. If Landlord elects to repair or restore such damage or destruction,
this Lease shall continue in full force and effect but the Rental shall be
proportionately reduced as provided in Paragraph 15.1(a) above. If Landlord does
not elect by notice to Tenant to repair such damage, or if the damage cannot, in
Landlord's judgment, be completed within three (3) months following the date of
notice to Landlord of such damage or destruction, Landlord may terminate this
Lease.

         15.3     Loss Caused by Tenant or Tenant's Employees. If the Premises
or the Building or the Project are wholly or partially damaged or destroyed as a
result of the willful misconduct or negligence of

                                       15



Tenant or Tenant's Employees, and Landlord elects to undertake to repair or
restore all such damage or destruction, such repair and restoration shall be at
Tenant's sole cost and expense, and this Lease shall continue in full force and
effect without any abatement or reduction in Rental or other payments owed by
Tenant; provided, however, that Tenant shall be relieved of its obligation
pursuant to this Paragraph 15.3 to the extent that insurance proceeds are
collected by Landlord, in which case Tenant shall be responsible for the payment
of the deductible and that portion not covered by insurance.

         15.4     Destruction During Final Year. Notwithstanding anything to the
contrary contained in Pars. 15.1, 15.2 or 15.3 above, if the Premises or the
Building or the Project are wholly or partially damaged or destroyed within the
final twelve (12) months of the Term, Landlord or Tenant may, at its option and
by giving the other party notice within thirty (30) days after notice of the
occurrence of such damage or destruction, elect to terminate this Lease.

         15.5     Destruction of Tenant's Personal Property, Tenant Improvements
or Tenant's Extra Improvements. In the event of any damage to or destruction of
the Premises or the Building or the Project, under no circumstances shall
Landlord be required to repair any injury, or damage to, or make any repairs to
or replacements of, Tenant's Personal Property or the Tenant Improvements.
Unless, Landlord has been grossly negligent or engaged in willful misconduct,
Landlord shall have no responsibility for any property placed or kept in or on
the Premises or the Building or the Project by Tenant or Tenant's Employees.

         15.6      [INTENTIONALLY OMITTED.]

16.      EMINENT DOMAIN.

         16.1     Permanent Taking - When Lease Can Be Terminated. If the whole
of the Premises, or so much of the Premises as to render the balance unusable by
Tenant, shall be taken under the power of eminent domain, the Lease shall
automatically terminate as of the date of final judgment in such condemnation,
or as of the date possession is taken by the condemning authority, whichever is
earlier. A sale by Landlord under threat of condemnation shall constitute a
"taking" for the purpose of this Paragraph 16. No award for any partial or
entire taking shall be apportioned and Tenant assigns to Landlord any award
which may be made in such taking or condemnation, together with all rights of
Tenant to such award, including, without limitation, any award or compensation
for the value of all or any part of the leasehold estate; provided that nothing
contained in this Paragraph 16 shall be deemed to give Landlord any interest in
or to require Tenant to assign to Landlord any award made to Tenant for (a) the
taking of Tenant's Personal Property, or (b) interruption of or damage to
Tenant's business, or (c) Tenant's unamortized cost of the Tenant Improvements
to the extent paid for by Tenant.

         16.2     Permanent Taking - When Lease Cannot Be Terminated. In the
event of a partial taking which does not result in a termination of the Lease,
Rental shall be proportionately reduced based on the portion of the Premises
rendered unusable, and Landlord shall restore the Premises or the Building to
the extent of available condemnation proceeds.

         16.3     Temporary Taking. No temporary taking of the Premises or any
part of the Premises and/or of Tenant's rights to the Premises or under this
Lease shall terminate this Lease or give Tenant any right to any abatement of
any payments owed to Landlord pursuant to this Lease; any award made to Tenant
by reason of such temporary taking shall belong entirely to Tenant.

         16.4     [INTENTIONALLY OMITTED.]

         16.5     Release Upon Termination. Upon termination of the Lease
pursuant to this Paragraph 16, Tenant and Landlord hereby agree to release each
other from any and all obligations and liabilities with respect to the Lease
except such obligations and liabilities which arise or accrue prior to such
termination.

17.      DEFAULTS.

         17.1     Default by Tenant. Each of the following shall be an "Event of
Default" by Tenant and a material breach of the Lease:

                                       16



         (a)      Tenant shall fail to make any payment owed by Tenant under the
Lease, as and when due, and where such failure is not cured within three (3)
business days after receipt of written notice to Tenant; and

         (b)      Tenant shall fail to observe, keep or perform any of the
terms, covenants, agreements or conditions under the Lease that Tenant is
obligated to observe or perform, other than that described in Paragraph 17,1(a)
above, for a period of thirty (30) days after receipt of written notice to
Tenant of said failure; provided however, that if the nature of Tenant's default
is such that more than thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default so specified within said thirty
(30) day period and diligently prosecutes the same to completion, which extended
period in no event shall exceed three (3) months.

         17.2     Default by Landlord. Landlord shall not be in default in the
performance of any obligation required to be performed under this Lease unless
Landlord has failed to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days is required for its performance, Landlord shall
not be deemed in default if Landlord shall commence such performance within
thirty (30) days and thereafter diligently pursues the same to completion.
Tenant shall have no rights as a result of any default by Landlord until Tenant
gives thirty (30) days written notice to any person who has a recorded interest
pertaining to the Building, specifying the nature of Landlord's default. Such
person shall then have the right to cure such default, and Landlord shall not be
deemed in default if such person cures such default within thirty (30) days
after receipt of notice of the default, or within such longer period of time as
may reasonably be necessary to cure the default. If Landlord or such person does
not cure the default as provided herein, Tenant may exercise such rights or
remedies or shall be provided or permitted by law to recover any damages
proximately caused by such default. Landlord's liability to Tenant for damages
resulting from Landlord's breach of any provision or provisions of the Lease
shall not exceed the value of Landlord's equity interest in the Project.

18.      LANDLORD'S REMEDIES AND RIGHTS.

         18.1     Termination of Lease. Upon an Event of Default by Tenant, the
Landlord shall have the right, in addition to all other rights available to
Landlord under this Lease or now or later permitted at law or in equity, to
terminate this Lease by providing Tenant with a written notice of termination,
in which event Tenant shall immediately surrender the Premises to Landlord, and
if Tenant fails to do so, Landlord may, without prejudice to any other remedy
which it may have for possession or arrearage in rent, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof, without being liable for
prosecution or any claim or damages therefor; and Landlord may recover from
Tenant the following: (i) The worth at the time of award of any unpaid Rent
which had been earned at the time of such termination; (ii) The worth at the
time of award of the amount by which the unpaid Rent which would have been
earned after termination until the time of award exceeds the amount of such Rent
loss that Tenant proves could have been reasonably avoided; (iii) The worth at
the time of award of the amount by which the unpaid Rent for the balance of the
Term after the time of award exceeds the amount of such Rent loss that Tenant
proves could be reasonably avoided; and (iv) All reasonable attorney fees
incurred by Landlord relating to the default and termination of this Lease plus
interest on all sums due Landlord by Tenant at the legal interest rate not to
exceed ten percent (10%) per year ("Default Rate").

         All Rent, other than the basic monthly Rental, shall be computed on the
basis of the average monthly amount thereof accruing during the twenty four (24)
month period immediately prior to default, except that if it becomes necessary
to compute Rent before such twenty four (24) month period has occurred, then on
the basis of the average monthly amount accruing during such shorter period.

         As used herein, the "worth at the time of award" is computed by
discounting such amount at the legal rate of ten percent (10%) per year.

         18.2     Right Not To Terminate. Landlord shall have the remedy
described in Civil Code Section 1951.4 (lessor may continue lease in effect
after lessee's breach and abandonment and recover rent as it becomes due, if
lessee has the right to sublet or assign, subject only to reasonable
limitations).

                                       17


Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may, from time to time, without terminating this
Lease, enforce all of its rights and remedies under this Lease, including the
right to recover all rent as it becomes due.

         18.3     Right of Re-Entry. Upon an Event of Default by Tenant,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and Tenant's Personal Property from
the Premises, such property being removed and stored in a public warehouse or
elsewhere at Tenant's sole cost and expense. No removal by Landlord of any
persons or property in the Premises shall constitute an election to terminate
this Lease. Such an election to terminate may only be made by Landlord in
writing, or decreed by a court of competent jurisdiction. Landlord's right of
entry shall include the right to remodel the Premises and re-let the Premises.
All costs incurred in such re-entry and re-letting shall be paid solely by
Tenant. Rents collected by Landlord from any other tenant which occupies the
Premises shall be offset against the amounts owed to Landlord by Tenant. Tenant
shall be responsible for any amounts not recovered by Landlord from any other
tenant. Any payments made by Tenant shall be credited to the amounts owed by
Tenant in the sole order and discretion of Landlord, irrespective of any
designation or request by Tenant. No re-entry by Landlord shall prevent Landlord
from later terminating the Lease by written notice.

         18.4     Waiver of Redemption. Tenant hereby waives, for itself and all
persons claiming by, under, and through Tenant, all rights and privileges which
it might have under any present or future law to redeem the Premises or to
continue the Lease after being dispossessed or ejected from the Premises.

         18.5     Right To Perform. If Tenant fails to perform any covenant,
condition or agreement to be performed by Tenant under the Lease, Landlord may
perform such covenant or condition at its sole option, after written notice to
Tenant. All costs incurred by Landlord in so performing shall immediately be
reimbursed to Landlord by Tenant, together with interest at the Interest Rate
computed from the due date. Any performance by Landlord of Tenant's obligations
shall not waive or cure such default. Landlord may perform Tenant's defaulted
obligations at Tenant's sole cost and expense without notice in the case of any
emergency. All costs and expenses incurred by Landlord, including reasonable
attorneys' fees (whether or not legal proceedings are instituted), in collecting
Rent or enforcing the obligations of Tenant under the Lease shall be paid by
Tenant to Landlord upon demand.

         18.6     Remedies Not Exclusive. The rights and remedies of Landlord
set forth herein are not exclusive, and Landlord may exercise any other right or
remedy available to it under this Lease, at law or in equity.

19.      ATTORNEYS' FEES.

         If either Landlord or Tenant commences or engages in, or threatens to
commence or engage in, any action or litigation or arbitration against the other
party arising out of or in connection with the Lease of the Premises, the
Building or the Project, including but not limited to, any action for recovery
of any payment owed by either party under the Lease, or to recover possession of
the Premises, or for damages for breach of the Lease, the prevailing party shall
be entitled to have and recover from the losing party reasonable attorneys' fees
and other costs incurred in connection with and preparation for such action.

20.      SUBORDINATION.

         20.1     Obligations of Tenant. The Lease and the rights granted to
Tenant by the Lease are and shall be subject and subordinate at all times to:
(a) all ground or underlying leases affecting all or any part of the Project now
or later existing, and all amendments, renewals, modifications, supplements and
extensions of such leases, and (b) all deeds of trust or mortgages now or later
affecting or encumbering all or any part of the Project and/or any ground or
underlying leasehold estate; provided, however, that if Landlord elects at any
time to have Tenant's interest in the Lease be or become superior, senior or
prior to any such instrument, then upon receipt by Tenant of written notice of
such election, Tenant shall immediately execute all necessary subordination of
such mortgage, deed of trust, ground or underlying lease to the Lease.

         20.2     Attornment by Tenant. In the event of the cancellation or
termination of any or all ground or underlying leases affecting all or any part
of the Project in accordance with its terms or by the surrender

                                       18



thereof, whether voluntary, involuntary or by operation of law, or by summary
proceedings, or in the event of any foreclosure, or by the commencement of any
judicial action seeking foreclosure, Tenant, at the request of the then Landlord
under the Lease, shall attorn to and recognize: (a) the ground or underlying
lessor, under the ground or underlying lease being terminated or cancelled, or
(b) the beneficiary or purchaser at the foreclosure sale, as Tenant's Landlord
under the Lease, and Tenant agrees to execute and deliver at any time upon
request of such ground or underlying lessor, beneficiary, purchaser, or their
successors, any instrument to further evidence such attornment. Tenant hereby
waives its right, if any, to elect to terminate the Lease or to surrender
possession of the Premises in the event of any such ground or underlying lease
cancellation or termination or mortgage or deed of trust foreclosure.

         20.3     Attorney-In-Fact. If Tenant fails to promptly execute and
deliver any documents or instruments required by this Paragraph 20, such failure
shall, at Landlord's option, constitute an Event of Default, and Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's special
attorney-in-fact to execute and deliver any such documents or instruments.

21.      RULES AND REGULATIONS.

         Tenant shall faithfully observe and comply with the Building rules and
regulations ("Rules"), a copy of which is attached to this Lease as Exhibit "C",
and all reasonable modifications and additions to the Rules from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for the
non-performance of any of the Rules by any other occupant or tenant of the
Project.

22.      HOLDING OVER.

         22.1     Surrender of Possession. Tenant shall surrender possession of
the Premises immediately upon the expiration or earlier termination of the
Lease. If Tenant shall continue to occupy or possess the Premises after such
expiration or termination without the consent of Landlord, then Tenant shall be
a tenant at will, but if Landlord has consented to such holdover in writing,
Tenant shall be a tenant from month-to-month. All the terms, provisions and
conditions of the Lease shall apply to the month-to-month tenancy except those
terms, provisions and conditions pertaining to the Term, except that the Rental
shall be immediately adjusted upward upon the expiration or earlier termination
of the Lease to equal the greater of (a) one hundred and twenty five percent
(125%) of the then prevailing monthly rental rate for similar commercial space,
as determined by the Landlord, or (b) one hundred and twenty five percent (125%)
of the Rental for the Premises in effect under this Lease on the day immediately
prior to the date of the expiration or earlier termination of the Lease. The
month-to-month tenancy may be terminated by Landlord or Tenant upon thirty (30)
days prior written notice to the nonterminating party. In the event that Tenant
fails to surrender the Premises upon such expiration or earlier termination,
then Tenant shall indemnify and hold Landlord harmless against all losses or
liability resulting from or arising out of Tenant's failure to surrender the
Premises, including, but not limited to, any amounts required to be paid to or
damages incurred due to the loss of any tenant or prospective tenant who was to
have occupied the Premises after said termination or expiration and any related
reasonable attorneys' fees and brokerage commissions.

         22.2     Payment of Money After Termination. No payment of money by
Tenant to Landlord after the termination of the Lease by Landlord, or after the
giving of any notice of termination to Tenant by Landlord which Landlord is
entitled to give Tenant under the Lease, shall reinstate, continue or extend the
Term of the Lease or shall affect any such notice given to Tenant prior to the
payment of such money, it being agreed that after the service of such notice or
the commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease, and otherwise exercise its rights and remedies. The making of
any such payments by Tenant shall not waive such notice, or in any manner affect
any pending suit or judgment obtained.

23.      INSPECTIONS AND ACCESS.

         Landlord may enter the Premises at all reasonable hours for any
reasonable purpose. Tenant, upon Landlord's 24-hour advance notice, shall permit
Landlord an entry into the Premises. In the event of an emergency, Landlord may
enter the Premises without any advance notice if accompanied by a bank officer
or a police or fire department officer. Tenants shall have access to the
Premises seven (7) days

                                       19



per week and twenty four (24) hours per day, subject to compliance by Tenant
with the security services furnished with respect to the Building pursuant to
Paragraph 32.1 below.

24.      NAME OF BUILDING AND PROJECT AND SIGNAGE.

         Except as provided in Section 12 of the Lease Summary herein and above,
Tenant shall not use any name, insignia, or logotype of the Building or the
Project for any purpose or use any picture of the Building or the Project in its
advertising, stationery or any other manner without the prior written consent of
Landlord. Landlord expressly reserves the right, in Landlord's sole and absolute
discretion, at any time to change the name, insignia, logotype, of the Building
or the Project without in any manner being liable to Tenant. Landlord will
notify Tenant in writing one hundred and eighty (180) days prior to any such
change. Tenant shall be entitled to install, at its sole cost and expense, (a)
building signage on the place designated by Landlord. The design of such signage
shall be mutually agreed upon by Landlord and Tenant and subject to all
applicable governmental approvals.

25.      SURRENDER OF LEASE.

         The voluntary or other surrender of the Lease by Tenant, or a mutual
cancellation of the Lease, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of Tenant's interest in
any or all such subleases or subtenancies.

26.      WAIVER.

         The waiver by Landlord or Tenant of any term, covenant, agreement or
condition contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other term, covenant, agreement,
condition or provision of this Lease, nor shall any custom or practice which may
develop between the parties in the administration of the Lease be construed to
waive or lessen the right of Landlord or Tenant to insist upon the performance
by the other in strict accordance with all of the terms, covenants, agreements,
conditions, and provisions of the Lease. The subsequent acceptance by Landlord
of any payment owed by Tenant to Landlord under the Lease, or the payment of
Rent by Tenant, shall not be deemed to be a waiver of any preceding breach by
Tenant of any term, covenant, agreement, condition or provision of the Lease,
other than the failure of Tenant to make the specific payment so accepted by
Landlord, regardless of Landlord's or Tenant's knowledge of such preceding
breach at the time of the making or acceptance of such payment.

27.      SALE BY LANDLORD.

         In the event Landlord shall sell, assign, convey or transfer all or a
part of his interest in the Project or any part of the Project, Tenant agrees to
attorn to such transferee, assignee or new owner, and upon consummation of such
sale, conveyance or transfer, Landlord shall automatically be freed and relieved
from all liability and obligations accruing or to be performed from and after
the date of such sale, transfer, or conveyance. In the event of such sale,
assignment, transfer or conveyance, Landlord shall transfer to such transferee,
assignee or new owner of the Project the balance of the Security Deposit, if
any, remaining after lawful deductions and in accordance with Civil Code
Section 1950.7, after notice to Tenant, and Landlord shall thereupon be relieved
of all liability with respect to the Security Deposit.

28.      NO LIGHT AND AIR EASEMENT.

         Any diminution or shutting off of light or air by any structure which
may be erected on lands adjacent to or in the vicinity of the Project shall not
affect the Lease, abate any payment owed by Tenant under the Lease or otherwise
impose any liability on Landlord.

29.      FORCE MAJEURE.

         One party shall not be chargeable with, liable for, or responsible to
the other party for anything or in any amount for any failure to perform or
delay caused by: fire; earthquake; explosion; flood; hurricane;

                                       20



the elements; acts of God or the public enemy; actions, restrictions,
limitations or interference of governmental authorities or agents; war;
invasion; insurrection; rebellion; riots; strikes or lockouts; inability to
obtain necessary materials, goods, equipment, services, utilities or labor; or
any other cause which is beyond the reasonable control of the party; and any
such failure or delay due to said causes or any of them shall not be deemed a
breach of default in the performance of the Lease by the party.

30.      ESTOPPEL CERTIFICATES.

         Tenant shall, at any time and from time to time, but in no event more
than three (3) times per year, upon request of Landlord, within thirty (30) days
following notice of such request from Landlord, execute, acknowledge and deliver
to Landlord in recordable form, a certificate (the "Estoppel Certificate") in
writing in the form of the attached Exhibit "D" or in such other form as
Landlord or any of its lenders, prospective purchasers, lienholders or assignees
may deem appropriate. Failure by Tenant to deliver the Estoppel Certificate
within such thirty (30) day period shall be deemed to conclusively establish
that this Lease is in full force and effect and has not been modified except as
may be represented by Landlord. Tenant's failure to deliver the Estoppel
Certificate within such thirty (30) day period shall, at the option of Landlord,
constitute an Event of Default. Tenant irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver the Estoppel
Certificate to any lender, purchaser, investor or lienholder if the Estoppel
Certificate is not executed by Tenant and delivered to Landlord within the 7 day
period; but such appointment and subsequent execution and delivery by Landlord
shall not be deemed to have cured any default by Tenant under this Paragraph 30.

31.      PARKING LOT.

         So long as Tenant complies with the terms, provisions and conditions of
the Lease, Landlord shall maintain and operate, or cause to be maintained and
operated, the automobile parking lot.

32.      SECURITY SERVICES.

         32.1     Landlord's Right to Furnish Security Services. Landlord,
without any obligation to do so and in his sole discretion, may furnish security
services for the Premises, the Building and/or the Project. Tenant shall
nevertheless have sole responsibility for the protection of itself, Tenant's
Employees and all property of Tenant and Tenant's Employees located in, on or
about the Premises, the Building or the Project, and the provisions of Paragraph
14.3 above.

         32.2     Tenant's Right To Install Security System. Tenant may install
any automated and/or non-automated security system in, on or about the Premises.

33.      NOTICES.

         All notices, requests, consents, approvals, payments in connection with
the Lease, or communications that either party desires or is required or
permitted to give or make to the other party under the Lease shall only be
deemed to have been given, make and delivered, when received, if personally
served, or when mailed, if deposited in the U. S. mail, certified or registered
mail, postage prepaid, and addressed to the parties as specified in Section 10
of the Lease Summary or to such other address or addresses as either Landlord or
Tenant may from time to time designate to the other by written notice in
accordance herewith.

34.      OPTION AND RIGHT OF FIRST REFUSAL TO PURCHASE.

         Tenant does not have any option to purchase the Building.

35.      RIGHT OF FIRST REFUSAL TO LEASE.

         Tenant does not have any right of first refusal to lease.

36.      RIGHT TO TERMINATE LEASE.

         [intentionally omitted.]

                                       21



37.      CLEANING.

         The Premises shall be thoroughly cleaned at Landlord's expense both
prior to and immediately following Tenant's move into the Premises. Tenant shall
not cause or allow the Premises to become unreasonably dirty.

38.      MISCELLANEOUS.

         38.1     Authorization To Sign Lease. If Tenant is a corporation, each
individual executing the Lease on behalf of Tenant represents and warrants that
he/she is duly authorized to execute and deliver the Lease on behalf of Tenant
in accordance with Tenant's bylaws or a duly adopted resolution of Tenant's
Board of Directors, and that the Lease is binding upon Tenant in accordance with
its terms. Tenant shall, concurrently with its execution of the Lease, deliver
to Landlord upon its request a certified copy of such bylaws or the resolution
of its Board of Directors authorizing the execution of the Lease. If Tenant is a
partnership or trust, each individual executing the Lease on behalf of Tenant
represents and warrants that he/she is duly authorized to execute and deliver
the Lease on behalf of Tenant in accordance with its terms. Tenant shall,
concurrently with its execution of the Lease, deliver to Landlord upon its
request such certificates or written assurances from the partnership or trust as
Landlord may request authorizing the execution of the Lease.

         38.2     Entire Agreement. The Lease contains the entire agreement
between the parties respecting the Premises and all other matters covered or
mentioned in the Lease. The Lease may not be altered, changed or amended except
by an instrument in writing signed by both parties hereto.

         38.3     Severability. The illegality, invalidity or unenforceability
of any term, condition, or provision of the Lease shall in no way impair or
invalidate any other term, condition or provision of the Lease, and all such
other terms, conditions and provisions shall remain in full force and effect.

         38.4     Covenants and Conditions. All provisions, whether covenants or
conditions, on the part of Tenant shall be deemed to be both covenants and
conditions.

         38.5     Gender and Headings. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular and, when appropriate,
shall refer to action taken by or on behalf of the Landlord or Tenant by their
respective employees, agents, or authorized representatives. Words in masculine
gender include the feminine and neuter and vice versa. If there is more than one
Tenant, the obligations hereunder imposed upon Tenant shall be joint and
several. The paragraph headings of the Lease are not a part of the Lease and
shall have no effect upon the construction or interpretation of any part hereof.

         38.6     Successors and Assigns. Subject to the provisions of Pars. 12
and 27 above, and except as otherwise provided to the contrary in this Lease,
the terms, conditions and agreements of this Lease shall apply to and bind the
heirs, successors, legal representatives and permitted assigns of the parties
hereto.

         38.7     Governing Law. The Lease shall be governed by and construed
pursuant to the laws of the State of California.

         38.8     Exhibits. Exhibits "A", "B", "C", "D," "E" "F" and "G" and any
riders attached to the Lease, are hereby incorporated by this reference and made
a part of the Lease. In the event of variation or discrepancy, the duplicate
original hereof (including Exhibits, if any) held by Landlord shall control.

         38.9     Modification For Lender. Upon Landlord's request, Tenant
agrees to modify this Lease to meet the reasonable requirements of any or all
lenders or ground lessors selected by Landlord who request such modification as
a condition precedent to providing any loan or financing or to entering into any
ground lease affecting or encumbering the Project or any part thereof, provided
that such modification does not: (a) increase the Rental, (b) alter the Term, or
(c) materially adversely affect Tenant's rights under this Lease.

                                       22



         38.10    Transportation System Management Program. Tenant hereby
covenants and agrees, at its sole cost and expense, to participate in and
cooperate with the requirements of any and all transportation system management
programs adopted for the Project.

         38.11    Quiet Enjoyment. Landlord agrees that if Tenant shall perform
all of the covenants and agreements herein required to be performed by Tenant,
Tenant shall, subject to the terms of this Lease, and any mortgagees, at all
during the continuance of this Lease have the peaceable and quiet enjoyment of
the Premises.

         38.12    No Recordation. Landlord and Tenant agree that in no event and
under no circumstances shall this Lease or any document giving notice of this
Lease be recorded by Tenant.

         38.13    Time Is Of The Essence. Subject of the provisions of Paragraph
 29 above, time shall be of the essence of the Lease and of each of the
provisions hereof.

         38.14    Cumulative Remedies. No remedy or election provided, allowed
or given by any provision of the Lease shall be deemed exclusive unless so
indicated, but shall, whenever possible, be cumulative with all other remedies
at law or in equity.

         38.15    Nondiscrimination And Nonsegregation. Tenant herein covenants
by and for itself, its administrators, successors and assigns, and all persons
claiming under or through it, and this Lease is made and accepted upon and
subject to the following conditions: that there shall be no unlawful
discrimination against or segregation of any person or group of persons, on
account of age, race, color, creed, religion, sex, sexual orientation, handicap,
marital status, national origin, or ancestry, in the leasing, subleasing,
transferring, use, occupancy, tenure, or enjoyment of the Premises herein
leases, nor shall Tenant itself, or any person claiming under or through it,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use, or
occupancy, of tenants, lessees, subtenants, or vendees in the Premises and
improvements herein leased.

         38.16    Survival. The terms, covenants, and provisions of Paragraphs
6.4, 9, 14.4, 22.1 and 34.9 shall survive the expiration or earlier termination
of the Lease.

         38.17    Confidentiality. Except as required by law, as such laws are
interpreted by Tenant's legal counsel, this Lease and the terms, covenants,
obligations, and conditions contained in this Lease shall remain strictly
confidential. Tenant and Landlord agrees to keep such terms, covenants,
obligations and conditions strictly confidential and not to disclose such
matters to any other landlord, tenant, prospective tenant, or broker. Provided,
however, Tenant may provide a copy of this Lease to a non-party solely in
conjunction with Tenant's reasonable and good faith effort to secure an assignee
or sublessee for the Premises.

                        [SPACE INTENTIONALLY LEFT BLANK]

                                       23


         38.18    Broker And Commission. Tenant and Landlord each represents and
warrants that it has dealt with no broker, agent or finder on account of this
Lease other than the Brokers identified in Section 8 of the Lease Summary, and
each agrees to defend, indemnify and hold harmless the other from and against
any and all claims, damages and costs, including attorneys' fees, in connection
with any claim for brokerage, finder's or similar fees, or compensation related
to this Lease other than from the Broker, which may be made or alleged as a
result of acts or omissions of that party.

                  IN WITNESS WHEREOF, the parties have executed this Lease as of
the date first above written, acknowledged that party has carefully read each
and every provision of the Lease, that each party has freely entered into the
Lease of its own free will and violation, and that the terms, conditions and
provisions of the Lease are commercially reasonable as of the date first above
written.

         "LANDLORD"                                     "TENANT"

                                              NARA BANK,
                                              a National Association

________________________________              By:_______________________________
JOSEPH J. CHO, an individual                     ___________________________,
                                                  Its authorized agent

                                       24



                                   EXHIBIT "A"

                              BUILDING AND PROJECT

                              [See following page]

                                      A-1



                                   EXHIBIT "B"

                                    PREMISES

                             [See following page(s)]

                                      B-1



                                   EXHIBIT "C"

                              RULES AND REGULATIONS

         1. The sidewalks, entrances, exits, passages, parking areas, courts,
elevators, vestibules, stairways, corridors, terraces, lobbies or halls shall
not be obstructed or used for any purpose other than ingress and egress. The
halls, passages, entrances, exits, elevators and stairways are for the use of
the general public, however, Landlord shall retain the right to control and
prevent access thereto of all persons whose presence, in the reasonable judgment
of Landlord, is deemed to be prejudicial to the safety, character, reputation
and interests of the Building and its tenants. No Tenant or any of Tenant's
Employees shall go up on the roof of the Building.

         2. No signs, picture, placard, advertisement, notice, lettering,
direction or handbill shall be exhibited, distributed, painted, installed,
displayed, inscribed, placed or affixed by any Tenant on any part of the
exterior of Premises, the Building or the Project without the prior written
consent of Landlord, which consent shall not be unreasonably delayed, withheld
or denied. In the event of the violation of the foregoing by Tenant, Landlord
may remove the same without any liability, and may charge the expense incurred,
for such removal, to Tenant. Interior signs on doors shall be inscribed, painted
or affixed for Tenant by Landlord at Tenant's sole cost and expense, and shall
be of a size, color and style acceptable to Landlord.

         3. Tenant shall not drill into, or in any way deface any part of the
Premises or Building. No boring, cutting or stringing of wires, except for
customary boring, cutting or stringing, or laying of linoleum or other similar
floor coverings shall be permitted, except with the prior written consent of
Landlord.

         4. No bicycles, vehicles, birds or animals of any kind, other than
seeing eye dogs, shall be brought into or kept in or about the Premises, or the
Building, and no cooking, except the use of microwave oven for Tenant's employee
use, shall be done or permitted by Tenant on the Premises, except that of the
preparation of coffee, tea, hot chocolate and similar items for Tenant and
Tenant's Employees shall be permitted; provided, however, that the power
required shall not exceed that amount which can be provided by a 30-amp circuit.
Tenant shall not cause or permit any unusual or objectionable odors to be
produced or to permeate the Premises or the Building.

         5. The Premises shall not be used for manufacturing or for the storage
of merchandise except as much storage may be incidental to the use of the
Premises for general office purposes. No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public stenographer or
typist or for the manufacture or sale of liquor, narcotics or tobacco in any
form, or as a medical office, or as a barber or manicure shop, or as an
employment bureau, or as a travel agency, without the prior written consent of
Landlord. Tenant shall not sell or permit the sale of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise in or on the
Premises. Tenant shall not engage or pay any employees on the Premises except
those actually working for Tenant on the Premises. The Premises shall not be
used for lodging or sleeping or for any illegal purposes.

         6. Tenant shall not make or permit to be made, any unseemly noises
which disturb other occupants of the Building, whether by the use of any musical
instrument, radio, television, phonograph, screening room, loud, unusual or
disruptive noise, or in any other way. Tenant shall not use, keep or permit to
be used any foul or noxious gas or substance in, on or about the Premises.

         7. Tenant or any of Tenant's Employees shall not at any time bring or
keep within the Premises or the Building any flammable, combustible or explosive
fluid, chemical substance, or material. Electric space heaters shall not be used
at any time by Tenant.

         8. Furniture, freight, packages, equipment, safes or bulky matter of
any description shall be moved in or out of the Building only after the Building
manager has been furnished with prior notice and given his/her approval and only
during such hours and in such manner as may be prescribed by the Landlord from
time to time. The scheduling and manner of all tenant move-ins and move-outs
shall be subject to the reasonable discretion and approval of Landlord.

         9. No furniture shall be placed in front of the Building, or in any
lobby or corridor or balcony,

                                      X-1



without the prior written consent of Landlord. Landlord shall have the right to
remove all non-permitted furniture, without notice to Tenant, and at the sole
cost and expense of Tenant.

         10. Except for advertising customary for banks, including those of
Korean-American banks Landlord shall have the right to prohibit any advertising
by Tenant which, in Landlord's reasonable opinion, tends to impair the
reputation of the Building or its desirability as an commercial building and,
upon written notice from Landlord, Tenant shall immediately refrain from or
discontinue such advertising.

         11. Tenant shall be responsible for all persons for whom it causes to
be present in the Building and shall be liable to Landlord for all acts of such
persons. In the case of invasion, riot, public excitement, act of God, or other
circumstance rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access of all persons, including Tenant, to the
Building during the continuance of the same by such actions as Landlord may deem
appropriate, including the closing and locking of doors.

         12. Any persons employed by Tenant to do any improvement work in or
about the Premises shall, while in the Building and outside of the Premises, be
subject to and under the control and direction of the superintendent of the
Building (but shall not be deemed to be an agent or servant of said
superintendent or of the Landlord), and Tenant shall be responsible for all acts
of such persons.

         13. Canvassing, soliciting and peddling in or about the Building are
prohibited and Tenant shall cooperate to prevent the same.

         14. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the prior written consent of Landlord.

         15. Tenant shall faithfully observe and comply with the terms of any
and all covenants, conditions and restrictions recorded against the Project.

         16. For all purposes of this Exhibit "C", the term "Tenant" shall be
defined to include and encompass Tenant's employees, agents and contractors.

                                      X-2

                                   EXHIBIT "D"

                              ESTOPPEL CERTIFICATE

                                                            DATE:_______________

Gentlemen:

         The undersigned hereby certifies as follows:

         1. ____, a ____, as "Tenant," and ____, a ____, as "Landlord," entered
into a written lease dated ____, 200_, ("Lease"), in which Landlord leased to
Tenant and Tenant leased from Landlord, certain "Premises" described in said
Lease and located in the City of Los Angeles, County of Los Angeles, State of
California.

         2. The Lease is in full force and effect and has not been amended,
modified, supplemented or assigned by Tenant except by written agreement(s)
dated, ____, 200_. The Lease represents the entire agreement between Landlord
and Tenant.

         3. Tenant has accepted the Premises and is paying rent on a current
basis. Tenant has no setoffs, claims, or defenses to the enforcement of the
Lease.

         4. As of the date of this certificate, Tenant is not in default in the
performance of any of its obligations under the Lease, and has not committed any
breach of the Lease, and no notice of default has been given to Tenant.

         5. Rental (as defined in the Lease) in the amount of $____ was payable
from ____, 200_. No Rental has been paid by Tenant in advance under the Lease
except for a payment that becomes due on ____, 200_. The amount of the Operating
Expense Adjustment (as defined in the Lease) currently payable by Tenant is
$____ per month and Tenant has paid such amounts up to and including ____. A
Security Deposit in the amount of $____ was deposited with Landlord on ____,
200_.

         6. Tenant has no claim against Landlord for any other security deposit,
prepaid fee or charge or prepaid rent except as provided in Paragraph 6 of this
certificate.

         7. Tenant is executing and delivering this certificate with the
understanding that either a potential buyer is contemplating acquiring all or a
part of the Project or a potential lender or ground lessor is contemplating
providing financing or a ground lease which affects the Building and/or the
Project and that said buyer, lender or ground lessor will be entering into said
transaction in material reliance on this certificate.

                                              "TENANT"

                                              ______________________________
                                              a ____________________________

                                              By:___________________________
                                              Its:__________________________

                                      A-1



                                   EXHIBIT "E"

                           NOTICE OF LEASE TERM DATES

                                                        DATE:___________________

To: __________, Inc.
    _________________
    _________________

Re:      Lease dated ____, 200_, between ____________, a _____, Landlord, and
         ____, a ____, Tenant, concerning ____ square feet of space located on
         the ____ and ____ floors of the building located at ____.

Gentlemen:

         In accordance with the subject Lease, we wish to advise and/or confirm
as follows:

         1.       That the Premises have been accepted herewith by the Tenant,
                  and that the Rentable Area of the Premises is ____.

         2.       That the Tenant has possession of the subject Premises and
                  acknowledges that under the provisions of the subject Lease,
                  the Term of said Lease commenced as of ____ for a term of ____
                  months, ending on ____, 200_.

         3.       That in accordance with the subject Lease, Rental commenced to
                  accrue on ____.

         4.       If the Commencement Date of the subject Lease is other than
                  the first day of the month, the first billing will contain a
                  pro rata adjustment. Each billing thereafter shall be for the
                  full amount of the monthly installment as provided for in said
                  Lease.

         5.       Rent is due and payable in advance on the first day of each
                  and every month during the Term of said Lease. Your rent
                  checks should be made payable to ____.

                                              "TENANT"

                                              ______________________________
                                              a ____________________________

                                              By:___________________________
                                              Its:__________________________

AGREED AND ACCEPTED:

"LANDLORD"

________________________________
a ______________________________

By:_____________________________
Its:____________________________
    _______

                                      E-1



                                   EXHIBIT "F"

                                 LANDLORD'S WORK

                                      E-1



                                   EXHIBIT "G"

                                     SIGNAGE

                                      E-2



                                    EXHIBIT F

                                 LANDLORD'S WORK

Landlord shall, at Landlord's sole cost and expense, deliver the Premises in
standard "vanilla shell" condition and shall complete the following in a workman
like manner, conforming with Tenant's plans and specifications and all local,
state, and national codes and UL and NFPA requirements, where applicable.

         1.       Structural: Building shall be structurally capable of carrying
                  roof loads contemplated by the Tenant's prototype.

         2.       Demising Wall(s): Construct 1 hour rated demising wall(s) per
                  local code requirements..

         3.       Storefront: Frame with doorways and panic hardware and glazing
                  as specified by Landlord.

         4.       Floor: Level and concrete slab on one elevation.

         5.       Restrooms: Stub out of one (1) complete unisex, ADA,
                  handicap-access restroom at a mutually acceptable location.

         6.       HVAC: One (1) ton of HVAC for every 300 square feet of leased
                  Premises, ready for distribution by Tenant.

         7.       Electrical: Stub out of service and switchgear for 400 AMP,
                  3-Phase, 4-Wire, 120/208 Volt electrical service for the
                  Premises and J-Boxes for Tenant's signage.

         8.       Water:

                  a.       Domestic: Minimum 1" service stubbed into Premises
                           with 1' meter and backflow devices.

         9.       Sewer: Stub out of a minimum 4" sanitary sewer for the
                  Premises.

         10.      Gas: Minimum 2,000 C.F.H. with properly sized piping stubbed
                  at the front of the building.

         11.      Telephone: Minimum 2" conduit stub out at the building
                  electrical room.

EX-23.1

EXHIBIT 23.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement No. 333-62038 on Form S-3 and No’s 333-102974 and 333-58508 on Form S-8 of Nara Bancorp, Inc. of our report dated March 15, 2004 (which report express an unqualified opinion and includes an explanatory paragraph relating to a change in accounting principle), appearing in this Annual Report on Form 10-K of Nara Bancorp, Inc. and Subsidiaries for the year ended December 31, 2003.

/s/ Deloitte & Touche LLP

Los Angeles, California
March 15, 2004

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Benjamin Hong, certify that:

1.	I have reviewed this annual report on Form 10-K of Nara Bancorp, Inc. (“the Company”);
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this l report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and or, the period presented in this annual report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13A-14 and 15d-14) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

Dated: March 15, 2004	/s/ Benjamin Hong
	Benjamin Hong
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Timothy Chang, certify that:

1.	I have reviewed this annual report on Form 10-K of Nara Bancorp, Inc. (“the Company”);
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this l report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and or, the period presented in this annual report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13A-14 and 15d-14) for the registrant and we have:

a  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b  Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this report based on such evaluation; and

c.  Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent functions):

a All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

Date: March 15, 2004	/s/ Timothy Chang
	Timothy Chang
	Senior Vice President and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C 1350, as adopted), Benjamin Hong, Chief Executive Officer of Nara Bancorp, Inc. (the “Company”) hereby certifies that, to the best of their knowledge:

1.	The Company’s Annual Report on Form 10-K for the period ended December 31, 2003, and to which this Certification is attached as Exhibit 99.1 (the “Periodic Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and
2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 15th day of March, 2004.

/s/ Benjamin Hong  

Chief Executive Officer 

EX-32.2

EXHIBIT 32.2

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C 1350, as adopted), Timothy Chang, Chief Financial Officer of Nara Bancorp, Inc, hereby certifies that, to the best of their knowledge:

1.	The Company’s Annual Report on Form 10-K for the period ended December 31, 2003, and to which this Certification is attached as Exhibit 99.1 (the “Periodic Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and
2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 15th day of March, 2004.

/s/ Timothy Chang  

Chief Financial Officer