UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2006

Commission file number: 000-50050

Center Financial Corporation

(Exact name of Registrant as specified in its charter)

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

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

(Address of principal executive offices)

(213) 251-2222

(Registrant’s telephone number, including area code)

Not Applicable

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

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

x  Yes    ¨  No

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

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):

Yes  ¨    No  x

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

As of June 30, 2006 there were 16,521,805 outstanding shares of the issuer’s Common Stock with no par value.

FORM 10-Q

Index

PART I - FINANCIAL INFORMATION	3
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS	3
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
FORWARD-LOOKING STATEMENTS	17
SUMMARY OF FINANCIAL DATA	19
EARNINGS PERFORMANCE ANALYSIS	20
FINANCIAL CONDITION ANALYSIS	30
LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT	39
CAPITAL RESOURCES	42
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	43
ITEM 4: CONTROLS AND PROCEDURES	43
PART II - OTHER INFORMATION	44
ITEM 1: LEGAL PROCEEDINGS	44
ITEM 1A. RISK FACTORS	44
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
ITEM 3: DEFAULTS UPON SENIOR SECURITIES	44
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	45
ITEM 5: OTHER INFORMATION	45
ITEM 6: EXHIBITS	46
SIGNATURES	47

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PART I—FINANCIAL INFORMATION

Item 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CENTER FINANCIAL CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2006 AND DECEMBER 31, 2005

	6/30/2006			12/31/2005
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	82,424		$	79,822
Federal funds sold		7,080			58,490
Money market funds and interest-bearing deposits in other banks		5,264			5,064
Cash and cash equivalents		94,768			143,376
Securities available for sale, at fair value		170,109			226,023
Securities held to maturity, at amortized cost (fair value of $10,844 as of June 30, 2006 and $11,014 as of December 31, 2005)		10,990			11,052
Federal Home Loan Bank and Pacific Coast Bankers Bank stock, at cost		7,158			5,434
Loans, net of allowance for loan losses of $14,964 as of June 30, 2006 and $13,871 as of December 31, 2005		1,280,520			1,206,408
Loans held for sale, at the lower of cost or market		26,731			12,741
Premises and equipment, net		13,711			14,027
Customers’ liability on acceptances		5,515			4,028
Accrued interest receivable		7,312			6,486
Deferred income taxes, net		10,567			10,205
Investments in affordable housing partnerships		4,193			4,481
Cash surrender value of life insurance		10,991			10,805
Goodwill		1,253			1,253
Intangible assets-net		347			373
Other assets		5,140			4,311
Total	$	1,649,305		$	1,661,003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	409,380		$	395,050
Interest-bearing		1,034,778			1,085,506
Total Deposits		1,444,158			1,480,556
Acceptances outstanding		5,515			4,028
Accrued interest payable		12,222			9,084
Other borrowed funds		36,167			28,643
Trust preferred securities		18,557			18,557
Accrued expenses and other liabilities		7,151			7,421
Total liabilities		1,523,770			1,548,289
Commitments and Contingencies		—			—
Shareholders’ Equity
Serial preferred stock, no par value; authorized 10,000,000 shares; issued and outstanding, none		—			—
Common stock, no par value; authorized 40,0000,000 shares; issued and outstanding, 16,521,805 as of June 30, 2006 and 16,439,053 as of December 31, 2005		66,721			65,622
Retained earnings		60,399			48,268
Accumulated other comprehensive loss, net of tax		(1,585	)		(1,176	)
Total shareholders’ equity		125,535			112,714
Total	$	1,649,305		$	1,661,003

See accompanying notes to interim consolidated financial statements.

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CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	(Dollars in thousands, except per share data)
Interest and Dividend Income:
Interest and fees on loans	$	26,767		$	20,043		$	52,055		$	37,637
Interest on federal funds sold		595			188			1,418			359
Interest on taxable investment securities		2,058			1,422			4,244			2,703
Interest on tax-advantaged investment securities		152			76			249			147
Dividends on equity stock		92			54			158			87
Money market funds and interest-earning deposits		53			27			113			50
Total interest and dividend income		29,717			21,810			58,237			40,983
Interest Expense:
Interest on deposits		11,920			5,666			23,344			10,487
Interest expense on trust preferred securities		177			278			281			532
Interest on borrowed funds		359			272			693			538
Total Interest expense		12,456			6,216			24,318			11,557
Net interest income before provision for loan losses		17,261			15,594			33,919			29,426
Provision for loan losses		1,518			1,050			1,775			1,700
Net interest income after provision for loan losses		15,743			14,544			32,144			27,726
Noninterest Income:
Customer service fees		2,084			2,428			4,214			4,663
Fee income from trade finance transactions		797			929			1,750			1,831
Wire transfer fees		237			251			453			455
Gain on sale of loans		1,123			592			1,797			1,265
Net gain on sale of securities available for sale		—			1			—			51
Loan service fees		414			419			968			859
Insurance settlement—legal fees		2,520			—			2,520			—
Other income		532			394			1,012			927
Total noninterest income		7,707			5,014			12,714			10,051
Noninterest Expense:
Salaries and employee benefits		5,315			4,532			10,878			8,977
Occupancy		896			854			1,779			1,569
Furniture, fixtures, and equipment		509			407			969			815
Data processing		541			477			1,083			942
Professional service fees		354			1,108			2,414			1,906
Business promotion and advertising		1,123			666			1,968			1,316
Stationary and supplies		167			236			326			413
Telecommunications		165			170			338			299
Postage and courier service		195			187			336			350
Security service		239			197			502			372
Loss on termination of interest rate swap		—			—			—			306
Loss on interest rate swaps		30			(38	)		83			119
Other operating expenses		1,133			864			2,081			1,646
Total noninterest expense		10,667			9,660			22,757			19,030
Income before income tax provision		12,783			9,898			22,101			18,747
Income tax provision		5,104			3,888			8,653			7,324
Net income		7,679			6,010			13,448			11,423
Other comprehensive income—unrealized gain (loss) on available for sale securities, net of income tax (expense) benefit of $450, $(175), $296 and $214		(622	)		(89	)		(409	)		(313	)
Comprehensive income	$	7,057		$	5,921		$	13,039		$	11,110
EARNINGS PER SHARE:
Basic	$	0.47		$	0.37		$	0.82		$	0.70
Diluted	$	0.46		$	0.36		$	0.81		$	0.68

See accompanying notes to interim consolidated financial statements.

4

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (UNAUDITED)

	6/30/2006			6/30/2005
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	13,448		$	11,423
Adjustments to reconcile net income to net cash provided by operating activities:
Stock option compensation		343			—
Depreciation and amortization		1,202			761
Mark to market adjustments on interest rate swaps		110			295
Amortization of premium, net of accretion of discount, on securities available for sale and held to maturity		(253	)		30
Provision for loan losses		1,775			1,700
Net loss on sale of premises and equipment		114			—
Net gain on sale of securities available for sale		—			(51	)
Originations of SBA loans held for sale		(29,848	)		(13,999	)
Gain on sale of loans		(1,797	)		(1,265	)
Proceeds from sale of loans		30,923			38,086
Deferred tax (benefit) provision		—			995
Federal Home Loan Bank stock dividend		(130	)		(77	)
Increase in accrued interest receivable		(826	)		(519	)
Net increase in cash surrender value of life insurance policy		(186	)		(185	)
Increase in other assets and servicing assets		(2,359	)		(134	)
Increase in accrued interest payable		3,138			875
Increase (decrease) in accrued expenses and other liabilities		1,297			(2,023	)
Net cash provided by operating activities		16,951			35,912
Cash flows from investing activities:
Purchase of securities available for sale		(7,408	)		(93,062	)
Proceeds from principal repayment, matured, or called securities available for sale		62,881			46,905
Proceeds from sale of securities available for sale		—			13,531
Purchase of securities held to maturity		(518	)		—
Proceeds from matured, called or principal repayment on securities held to maturity		572			1,135
Purchase of Federal Home Loan Bank and other equity stock		(1,594	)		(1,339	)
Proceeds (payments) from net swap settlement		(193	)		239
Net increase in loans		(89,675	)		(124,339	)
Proceeds from recoveries of loans previously charged-off		520			38
Purchases of premises and equipment		(711	)		(2,013	)
Net increase in investments in affordable housing partnerships		—			157
Net cash used in investing activities		(36,126	)		(158,748	)
Cash flows from financing activities:
Net (decrease) increase in deposits		(36,398	)		155,195
Net increase in other borrowed funds		7,524			3,684
Proceeds from stock options exercised		597			496
Tax benefit in excess of recognized cumulative compensation costs		158			—
Payment of cash dividend		(1,314	)		(1,309	)
Net cash (used in) provided by financing activities		(29,433	)		158,066
Net (decrease) increase in cash and cash equivalents		(48,608	)		35,230
Cash and cash equivalents, beginning of the year		143,376			103,142
Cash and cash equivalents, end of the period	$	94,768		$	138,372
Supplemental disclosure of cash flow information:
Interest paid	$	21,180		$	10,681
Income taxes paid	$	10,360		$	7,980
Supplemental schedule of noncash investing, operating, and financing activities:
Cash dividend accrual	$	660		$	655

See accompanying notes to interim consolidated financial statements.

5

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. THE BUSINESS OF CENTER FINANCIAL CORPORATION

Center Financial Corporation (“Center Financial”) was incorporated on April 19, 2000 and acquired all of the issued and outstanding shares of Center Bank (the “Bank”) in October 2002. Currently, Center Financial’s direct subsidiaries include the Bank and Center Capital Trust I. Center Financial exists primarily for the purpose of holding the stock of the Bank and of other subsidiaries. Center Financial, the Bank, and the subsidiary of the Bank (“CB Capital Trust”) discussed below, are collectively referred to herein as the “Company.”

The Bank is a California state-chartered and FDIC-insured financial institution, which was incorporated in 1985 and commenced operations in March 1986. The Bank changed its name from California Center Bank to Center Bank in December 2002. The Bank’s headquarters is located at 3435 Wilshire Boulevard, Suite 700, Los Angeles, California 90010. The Bank provides comprehensive financial services for small to medium sized business owners, primarily in Southern California. The Bank specializes in commercial loans, which are mostly secured by real property, to multi-ethnic and small business customers. In addition, the Bank is a Preferred Lender of Small Business Administration (“SBA”) loans and provides trade finance loans and other international banking products. The Bank’s primary market is the greater Los Angeles metropolitan area, including Los Angeles, Orange, San Bernardino, and San Diego counties, primarily focused in areas with high concentrations of Korean-Americans. The Bank currently has 17 full-service branch offices, 15 of which are located in Los Angeles, Orange, San Bernardino, and San Diego counties. The Bank opened all California branches as de novo branches. On April 26, 2004, the Company completed its acquisition of the Korea Exchange Bank (KEB) Chicago branch, the Bank’s first out-of-state branch, with a focus on the Korean-American market in Chicago. The Company assumed $12.9 million in FDIC insured deposits and purchased $8.0 million in loans from the KEB Chicago branch. The Company opened two new branches in Irvine, California and Seattle, Washington in 2005. The Bank also operates nine Loan Production Offices (“LPOs”) in Phoenix, Seattle, Denver, Washington D.C., Las Vegas, Atlanta, Honolulu, Houston and Dallas.

CB Capital Trust, a Maryland real estate investment trust (“REIT”) which is a consolidated subsidiary of the Bank, was formed in August 2002 for the primary business purpose of investing in the Bank’s real-estate related assets, and enhancing and strengthening the Bank’s capital position and earnings primarily through tax advantaged income from such assets. On December 31, 2003, the California Franchise Tax Board issued an opinion listing bank-owned REITs as potentially abusive tax shelters subject to possible penalties, and stating that REIT consent dividends are not deductible for California state income tax purposes. In view of this opinion, it appears that the REIT will not be able to fulfill its original intended purposes, and management has initiated steps to dissolve the REIT.

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

Center Financial’s principal source of income is currently dividends from the Bank. The expenses of Center Financial, including legal and accounting and Nasdaq listing fees, have been and will generally be paid from dividends paid to Center Financial by the Bank.

2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Center Financial, the Bank, and CB Capital Trust. Center Capital Trust I is not consolidated as disclosed in Note 7.

The interim consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for unaudited financial statements. The

6

information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for the fair statement of results for the periods presented. All adjustments are of a normal and recurring nature. Results for the three and six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes included in Company’s annual report on Form 10-K for the year ended December 31, 2005.

3. SIGNIFICANT ACCOUNTING POLICIES

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

4. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the cost resulting from stock options be measured at fair value and recognized in earnings. This Statement replaces Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) which permitted the recognition of compensation expense using the intrinsic value method. SFAS No. 123R was to be effective July 1, 2005. However, on April 15, 2005, the Securities Exchange Commission (“SEC”) issued a press release announcing the amendment of the compliance date for SFAS No. 123R to be no later than the beginning of the first fiscal year beginning after June 15, 2005. The Company adopted SFAS 125R effective January 1, 2006 (see note 5 Stock-Based Compensation).

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), “Share-Based Payment”, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Company provided SAB No. 107 required disclosures upon adoption of SFAS No. 123R for the period ended June 30, 2006.

Additionally, during 2005 and 2006 the FASB Staff issued four FASB Staff Positions (FSPs) related to SFAS No. 123R, FSP FAS 123R-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123R”, FSP FAS 123R-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R”, FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” and FSP FAS 123R-4 “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event”. Each of these FSPs has been considered and has been incorporated into the adoption of SFAS No. 123R.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, that addresses accounting for changes in accounting principles, changes in accounting estimates and changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions and error correction. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle and error correction unless impracticable to do so. SFAS No. 154 states an exception to retrospective application when a change in accounting principle, or the method of applying it, may be inseparable from the effect of a change in accounting estimate. When a change in principle is inseparable from a change in estimate, such as depreciation, amortization or depletion, the change to the financial statements is to be presented in a prospective manner. SFAS No. 154 and the required disclosures are effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.

7

In March 2004, the Emerging Issues Task Force (“EITF”) reached consensus on the guidance provided in EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (“EITF 03-1”) as applicable to debt and equity securities that are within the scope of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and equity securities that are accounted for using the cost method specified in Accounting Policy Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock.” An investment is impaired if the fair value of the investment is less than its cost. EITF 03-1 outlines that an impairment would be considered other-than-temporary unless: a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment, and b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Although not presumptive, a pattern of selling investments prior to the forecasted recovery of fair value may call into question the investor’s intent. The severity and duration of the impairment should also be considered in determining whether the impairment is other-than-temporary. Adoption of EITF 03-1 did not have a material impact on the operations or the financial condition of the Company.

In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) 115-1/124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This FSP provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss in earnings. Specifically, the guidance clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. The FSP also requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. Companies are required to apply the guidance in this FSP to reporting periods beginning after December 15, 2005. Adoption of this FSP did not have a significant effect on the Company’s financial condition or results of operation.

On December 19, 2005, the FASB staff issued FSP SOP 94-6-1, “Terms of Loan Products That May Give Rise to a Concentration of Credit Risk”. This FSP recognizes that certain loan products (e.g., loans subject to significant payment increases, negatively amortizing loans and loans with high loan-to-value ratios) may increase a reporting entity’s exposure to credit risk, that may result in a concentration of credit risk as defined in SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” that requires separate disclosure within the financial statements. The FSP was effective immediately and the disclosures required have been presented.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement also resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS No. 155 also allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis, in case in which a derivative would otherwise have to be bifurcated. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not expect the adoption SFAS No. 155 to have a material impact on the consolidated financial statements or results of operations of the Company.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140. SFAS 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract if a) a transfer of the servicer’s assets meets the requirements for sale accounting b) a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitzation in which the transferor retains

8

all of the resulting securities and c) an acquisition or assumption of an obligation to service a financial asset does not relate to financial assets of the servicer or its consolidated affiliates. Further, the SFAS requires all separately recognized servicing asset and liabilities to be initially measured at fair value, if practicable. SFAS 156 must be adopted as of the first fiscal year that begins after September 15, 2006. The Company does not expect the adoption SFAS No. 156 to have a material impact on the consolidated financial statements or results of operations of the Company.

5. STOCK-BASED COMPENSATION

The Company had a Stock Option Plan, adopted by the Bank in 1996, assumed by the Company in connection with the Holding Company reorganization in 2002 and amended as of March 24, 2004, under which options may be granted to key employees and directors of the Company. This plan expired in February 2006 and the shareholders approved a new stock incentive plan in May 2006. Under both plans, option prices could not be less than 100% of the fair market value at the date of grant. Options vest at the rate of 33 ¹/3% per year for directors (Non-Qualified Stock Option Plan) and generally 20% per year for employees (Incentive Stock Option Plan) and all options not exercised expire ten years after the date of grant.

Effective January 1, 2006 the Company adopted SFAS 123R. Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic value method of APB 25. As a result, prior to January 1, 2006 the Company did not recognize compensation expense in the statement of operations for options granted. As required by SFAS 123, the Company provided certain pro forma disclosures for stock-based compensation as if the fair-value-based approach of SFAS 123 had been applied.

The Company elected to use the modified prospective transition method as permitted by SFAS 123R and therefore has not restated the financial results for prior periods. Under this transition method, the Company will apply the provisions of SFAS 123R to new options granted or cancelled after December 31, 2005. Additionally, the Company will recognize compensation cost for the portion of options for which the requisite service has not been rendered (unvested) that are outstanding as of December 31, 2005, as the remaining service is rendered. The compensation cost the Company records for these options will be based on their grant-date fair value as calculated for the pro forma disclosures required by SFAS 123.

The Company’s pre-tax compensation expense for stock-based employee compensation was $170,000 and $343,000 ($148,000 and $306,000 after tax effects) for the three and six months ended June 30, 2006, respectively.

Prior to the adoption of SFAS 123R, the Company presented all tax benefits resulting from the exercise of stock options as operating cash flows in the consolidated statement of cash flows. SFAS 123R requires that cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (excess tax benefits) be classified as financing cash flows. For the three and six months ended June 30, 2006, such tax benefits amounted to approximately $158,000.

9

The following table details the effect on net income had stock-based compensation expense been recorded in the three and six months ended June 30, 2005 based on the fair-value method under SFAS 123.

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
	(Dollars in thousands, except per share data)
Reported net income	$	6,010		$	11,423
Add: Total stock based compensation expense included in reported net income, net of related tax effects		—			—
Deduct: Total stock based compensation expense determined under fair-value method for all awards, net of related tax expense		(139	)		(258	)
Pro forma net income	$	5,871		$	11,165
Earnings per share
Basic - reported	$	0.37		$	0.70
Basic - pro forma	$	0.36		$	0.68
Diluted - reported	$	0.36		$	0.68
Diluted - pro forma	$	0.35		$	0.67

The fair value of the stock options granted was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. Beginning in 2006, with the adoption of SFAS 123R the expected life (estimated period of time outstanding) of options granted with a 10-year term was determined using the average of the vesting period and term, an accepted method under SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life, ending on the day of grant, and calculated on a weekly basis.

	Three and Six Months Ended	Three and Six Months Ended
	6/30/2006	6/30/2005
Risk-free interest rate	2.05% - 6.21%	2.05% - 6.21%
Expected life	3 - 6.5 years	3 - 6.5 years
Expected volatility	30% - 34%	30% - 34%
Expected dividend yield	0.00% -1.05%	0.00% - 1.05%
Weighted average fair value	$3.37	$2.86

These assumptions were utilized in the calculation of the compensation expense noted above. This expense is the result of vesting of previously granted stock awards. No stock options were granted for the three months and six months ended June 30, 2006.

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A summary of the Company’s stock option activity and related information for the three and six months ended June 30, 2005 and 2006 is set forth in the following table:

			Outstanding Options							Outstanding Options
	Shares Available For Grant		Number of Shares		Weighted Average Exercise Price			Shares Available For Grant		Number of Shares		Weighted Average Exercise Price
Balance at March 31, 2006	936,389		601,089		$	13.76	Balance at December 31, 2005	936,389		638,804		$	13.38
Net options authorized under new plan	1,762,250						Net options authorized under new plan	1,762,250
Options granted	—		—			—	Options granted	—		—			—
Options forfeited	14,803		(14,803	)		8.76	Options forfeited	14,803		(14,803	)		8.76
Options exercised	—		(45,037	)		7.22	Options exercised	—		(82,752	)		7.21
Balance at June 30, 2006	2,713,442		541,249		$	14.44	Balance at June 30, 2006	2,713,442		541,249		$	14.44
Balance at March 31, 2005	983,565		689,622		$	9.97	Balance at December 31, 2004	970,975		759,779		$	9.95
Options granted	(69,000	)	69,000			21.06	Options granted	(69,000	)	69,000			21.06
Options forfeited	16,640		(16,640	)		6.24	Options forfeited	29,230		(29,230	)		8.16
Options exercised	—		(32,212	)		6.33	Options exercised	—		(89,779	)		5.53
Balance at June 30, 2005	931,205		709,770		$	11.66	Balance at June 30, 2005	931,205		709,770		$	11.66

The options as of June 30, 2006 have been segregated into six ranges for additional disclosure as follows:

	Options Outstanding				Options Exercisable
	Options Outstanding as of 6/30/2006	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price		Options Exercisable as of 6/30/2006	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price
Range of Exercise Prices
$2.23 -   $4.00	18,357	5.26	$	3.57	14,543	5.07	$	3.46
$5.00     $5.99	84,952	6.22	$	5.32	56,380	6.21	$	5.26
$6.00     $7.99	8,640	6.50	$	6.32	2,400	7.00	$	6.12
$8.00     $14.00	140,800	8.00	$	13.02	48,200	8.00	$	12.95
$14.01   $20.00	170,000	8.09	$	15.89	12,604	8.24	$	16.02
$20.01   $25.10	118,500	9.46	$	22.87	12,800	9.00	$	21.06
	541,249	7.95	$	14.44	146,927	7.79	$	9.92

Aggregate intrinsic value of options outstanding and options exercisable at June 30, 2006 was $5.0 million and $2.0 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $23.64 as of June 30, 2006, and the exercise price multiplied by the number of options outstanding. Total intrinsic value of options exercised was $752,000 and $484,000 for the three months ended June 30, 2006 and 2005, respectively, and $1.4 million for the six months ended June 30, 2006 and 2005.

As of June 30, 2006, the Company had approximately $1.5 million of unrecognized compensation costs related to non-vested options. The Company expects to recognize these costs over a weighted average period of 3.17 years.

6. OTHER BORROWED FUNDS

The Company borrows funds from the Federal Home Loan Bank and the Treasury, Tax, and Loan Investment Program. Other borrowed funds totaled $36.2 million and $28.6 million at June 30, 2006 and December 31, 2005, respectively. Interest expense on other borrowed funds was $281,000 and $532,000 for the six months ended June 30, 2006 and 2005, respectively, reflecting average interest rates of 4.74% and 4.31%, respectively.

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As of June 30, 2006, the Company borrowed $35.0 million from the Federal Home Loan Bank of San Francisco with note terms from less than 1 year to 15 years. Notes of 10-year and 15-year terms are amortizing at predetermined schedules over the life of notes. The Company has pledged, under a blanket lien (all qualifying commercial and residential loans) as collateral under the borrowing agreement with Federal Home Loan Bank, with a total carrying value of $384.7 million at June 30, 2006. Total interest expense on the notes was $248,000 and $517,000 for the six months ended June 30, 2006 and 2005, respectively, reflecting average interest rates of 4.54% and 3.12%, respectively.

Federal Home Loan Bank advances outstanding as of June 30, 2006 with an average interest rate of 5.22% mature as follows:

2006	$	28,173
2007		4,309
2008		325
2009		343
2010		361
Thereafter		1,453
	$	34,964

Borrowings obtained from the Treasury Tax and Loan Investment Program mature within a month from the transaction date. Under the program, the Company receives funds from the U.S. Treasury Department in the form of open-ended notes, up to a total of $2.2 million. The Company has pledged U.S. government agencies and/or mortgage-backed securities with a total carrying value of $2.8 million at June 30, 2006, as collateral to participate in the program. The total borrowed amount under the program, outstanding at June 30, 2006 and December 31, 2005 was $1.2 million and $1.1 million, respectively. These borrowings bore interest at the rate of 4.78% and 4.00% per annum as of June 30, 2006 and December 31, 2005, respectively

7. LONG-TERM SUBORDINATED DEBENTURES

Center Capital Trust I is a Delaware business trust formed by the Company for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. During the fourth quarter of 2003, Center Capital Trust I issued 18,000 Capital Trust Preferred Securities (“TP Securities”), with a liquidation value of $1,000 per security, for gross proceeds of $18,000,000. The entire proceeds of the issuance were invested by Center Capital Trust I in $18,000,000 of Junior Long-term Subordinated Debentures (the “Subordinated Debentures”) issued by the Company, with identical maturity, repricing and payment terms as the TP Securities. The Subordinated Debentures represent the sole assets of Center Capital Trust I. The Subordinated Debentures mature on January 7, 2034, with interest based on 3-month LIBOR plus 2.85% (7.92% at June 30, 2006), with repricing and payments due quarterly in arrears on January 7, April 7, July 7, and October 7 of each year commencing April 7, 2004. The Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any January 7th, April 7th, July 7th, and October 7th on or after April 7, 2009 at the Redemption Price. Redemption Price means 100% of the principal amount of Subordinated Debentures being redeemed plus accrued and unpaid interest on such Subordinated Debentures to the Redemption Date, or in case of redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Redemption Date is on or after April 7, 2009. The TP Securities are subject to mandatory redemption to the extent of any early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on January 7, 2034.

Holders of the TP Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security at a current rate per annum of 7.92%. Interest rate defined as per annum rate of interest, resets quarterly, equal to LIBOR immediately preceding each interest payment date (January 7, April 7, July 7, and October 7 of each year) plus 2.85%. The distributions on the TP Securities are treated as interest expense in the

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

On March 1, 2005, the FRB adopted a final rule that allows the continued inclusion of trust-preferred securities in the Tier I capital of bank holding companies. However, under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier I capital elements, net of goodwill. Trust preferred securities currently make up 14.0% of the Company’s Tier I capital.

In accordance with FIN 46, Center Capital Trust I is not reported on a consolidated basis. Therefore, the capital securities of $18,000,000 do not appear on the consolidated statement of financial condition. Instead, the long-term subordinated debentures of $18,557,000 payable by Center Financial to the Center Capital Trust I and the investment in the Center Capital Trust I’s common stock of $557,000 (included in other assets) are separately reported.

8. EARNINGS PER SHARE

The actual number of shares outstanding at June 30, 2006, was 16,521,805. Basic earnings per share is calculated on the basis of weighted average number of shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock method.

The following table sets forth the Company’s earnings per share calculation for the three and six months ended June 30, 2006 and 2005:

	Three Months Ended June 30,
	2006						2005
	(Dollars in thousands, except earnings per share)
	Net Income		Average Number of Shares	Per Share Amounts			Net Income		Average Number of Shares	Per Share Amounts
Basic earnings per share	$	7,679	16,494	$	0.47		$	6,010	16,356	$	0.37
Effect of dilutive securities:
Stock options		—	141		(0.01	)		—	321		(0.01	)
Diluted earnings per share	$	7,679	16,635	$	(0.46	)	$	6,010	16,677	$	0.36
	Six Months Ended June 30,
	2006						2005
	(Dollars in thousands, except earnings per share)
	Net Income		Average Number of Shares	Per Share Amounts			Net Income		Average Number of Shares	Per Share Amounts
Basic earnings per share	$	13,448	16,481	$	0.82		$	11,423	16,336	$	0.70
Effect of dilutive securities:
Stock options		—	160		(0.01	)		—	334		(0.02	)
Diluted earnings per share	$	13,448	16,641	$	0.81		$	11,423	16,670	$	0.68

Options not included in the computation of diluted earnings per share because they would have had an antidilutive effect amounted to 54,500 for both the three and six months ended June 30, 2006.

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9. CASH DIVIDENDS

On June 19, 2006, the Board of Directors declared a quarterly cash dividend of 4 cents per share. This cash dividend was paid on July 12, 2006 to shareholders of record as of June 28, 2006.

10. GOODWILL AND INTANGIBLES

In April 2004, the Company purchased the Chicago branch of Korea Exchange Bank and recorded goodwill of $1.3 million and a core deposit intangible of $462,000. The Bank amortizes premiums on acquired deposits using the straight-line method over 5 to 9 years. Accumulated amortization was $115,000 and $89,000 as of June 30, 2006 and December 31, 2005, respectively. Core deposit intangible, net of amortization, was $347,000 and $373,000 at June 30, 2006 and December 31, 2005, respectively. Estimated amortization expense, for five succeeding fiscal years and thereafter, is as follows:

(Dollars in thousands)

2006 (remaining six months)	$	27
2007		53
2008		53
2009		53
2010		53
Thereafter		108

11. COMMITMENTS AND CONTINGENCIES

Off-Balance-Sheet Risk

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

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

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

Commercial letters of credit, standby letters of credit, and performance bonds are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in making loans to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

A summary of the notional amounts of the Company’s financial instruments relating to extension of credit with off-balance-sheet risk at June 30, 2006 and December 31, 2005 follows:

Outstanding commitments (Dollars in thousands)

	June 30, 2006		December 31, 2005
Loans	$	286,581	$	255,096
Standby letters of credit		12,423		12,797
Performance bonds		258		283
Commercial letters of credit		30,579		24,262

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Litigation

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

On or about March 3, 2003, the Bank was served with a complaint filed by Korea Export Insurance Corporation (“KEIC”) in Orange County, California Superior Court, entitled Korea Export Insurance Corporation v. Korea Data Systems (USA), Inc., et al. KEIC is seeking to recover alleged losses from a number of parties involved in international trade transactions that gave rise to bills of exchange financed by various Korean Banks but not ultimately paid. KEIC is seeking to recover damages of approximately $56 million from the Bank based on a claim that, in its capacity as a presenting bank for these bills of exchange, the Bank acted negligently in presenting and otherwise handling trade documents for collection.

On November 10, 2005, the Orange County Superior Court dismissed all claims of KEIC against the Bank in this action on the grounds that federal courts have exclusive jurisdiction over KEIC’s claims against the Bank. KEIC appealed the dismissal; and, in addition, filed a new action against the Bank in federal court asserting the same claims. The Bank has filed a motion to dismiss the federal claims on the grounds of expiration of the applicable statute of limitations and a separate motion for summary judgment regarding each claim. KEIC opposes these motions that are currently pending hearings expected to take in place in September 2006. The oral argument on KEIC’s appeal of the state court judgment in the Bank’s favor is also expected to occur in September 2006. If the outcome of this litigation is adverse to the Bank, and it is required to pay significant monetary damages, the Company’s financial condition and results of operations are likely to be materially and adversely affected. The Bank intends to continue its vigorous defend this lawsuit. Although the Company believes that it has meritorious defenses, management cannot predict the outcome of this litigation.

On June 21, 2006, the Bank entered into a settlement with one of its insurance carriers, BancInsure, wherein BancInsure agreed to pay $3.75 million to settle its past and future obligations for legal fees under its insurance policies concerning the KEIC litigation (see note 13).

Memorandum of Understanding

On May 10, 2005, Center Bank entered into a memorandum of understanding (the “MOU”) with the FDIC and the California Department of Financial Institutions (the “DFI”). The MOU is an informal administrative agreement primarily concerning the Bank’s compliance with Bank Secrecy Act (“BSA”) regulations. In accordance with the MOU, the Bank agreed to (i) implement a written action plan, policies and procedures, and comprehensive independent compliance testing to ensure compliance with all BSA-related rules and regulations; (ii) correct any apparent BSA violations previously disclosed by the FDIC; (iii) develop the expertise to ensure that generally accepted accounting principles and regulatory reporting guidelines are observed in all of the Bank’s financial transactions and reporting; and (iv) furnish written quarterly progress reports to the FDIC and the DFI detailing the form and manner of any actions taken to secure compliance with the memorandum and the results thereof.

Management does not believe that the MOU will have a material impact on the Bank’s operating results or financial condition. However, if the DFI and FDIC were to determine that the Bank’s compliance with the MOU was not satisfactory, the MOU would constrain the Bank’s business. Management believes it has taken the measures deemed necessary to correct the identified deficiencies. However, only the FDIC and DFI have the authority to make such a determination.

Voluntary Compliance

The Company is in the process of concluding its negotiations with the Internal Revenue Service regarding past contributions to the 401(k) plan for the years 1997 to 2004. Legal counsel has advised the Company that if

15

certain documentation is submitted to the IRS within a specified period, it is possible to conclude these negotiations without further expense to the Company. However, the possibility exists that the Company may be required to make a payment to the 401(k) plan in the future to resolve this issue of prior years’ contributions. In the event the Company is required to make such a payment, management does not believe that such a payment would be material to the current year’s results of operations or material to any previously reported quarterly information. Given the ongoing nature of these negotiations, management is unable to determine the probable outcome of this matter and, accordingly, no liability has been recorded.

12. DERIVATIVE FINANCIAL INSTRUMENTS

The following table provides information as of June 30, 2006 on the Company’s outstanding derivatives:

Description	Notional Value		Period	Fixed Receiving Rate		Floating Paying Rate
	(Dollars in thousands)
Interest Rate Swap II	$	25,000	08/02-08/06	6.25	%	WSJ Prime	*

(*) At June 30, 2006, the Wall Street Journal published Prime Rate was 8.25 percent.

As of June 30, 2006 and December 31, 2005, the Company’s one interest rate swap agreement had a total notional amount of $25 million. Under the swap agreement, the Company receives a fixed rate and pays a variable rate based on Wall Street Journal published Prime Rate.

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

Losses on interest rate swaps, recorded in noninterest expense, consist of following:

	Three Months Ended June 30,						Six Months Ended June 30,
	(Dollars in thousands)
	2006			2005			2006			2005
Net swap settlement payments (receipts)	$	104		$	(25	)	$	193		$	(176	)
Decrease (increase) in market value		(74	)		(13	)		(110	)		295
Net change in market value	$	30		$	(38	)	$	83		$	119

13. NON-RECURRING ITEMS

On June 21, 2006, the Bank entered into a settlement with one of its insurance carriers, BancInsure, wherein BancInsure agreed to pay $3.75 million to settle its past and future obligations for legal fees under its insurance policies concerning the KEIC litigation. $1.0 million of the settlement was designated for future litigation costs. Of the remaining $2.75 million approximately $230,000 was utilized to recoup legal expenses incurred in the current quarter. The balance, approximately $2.5 million, has been reflected in noninterest income (Insurance settlement—legal fees) and represents reimbursement of legal fees associated with the KEIC litigation expensed prior to the quarter ended June 30, 2006. Total expenses associated with this litigation were approximately $364,000 for the six months ended June 30, 2006.

During the quarter ended March 31, 2006 the Company incurred expenses of approximately $1.4 million to upgrade its BSA compliance programs. The development and implementation of new systems and processes was completed during that quarter and management anticipates that future maintenance expenses will be modest.

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

Overview:

The following is management’s discussion and analysis of the major factors that influenced our consolidated results of operations and financial condition for the three and six months ended June 30, 2006. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005 and with the unaudited consolidated financial statements and notes as set forth in this report.

FORWARD-LOOKING STATEMENTS

Certain matters discussed under this caption may constitute forward-looking statements under Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because the business of the Company involves inherent risks and uncertainties. Risks and uncertainties include possible future deteriorating economic conditions in the Company’s areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available-for-sale securities declining significantly in value as interest rates rise or issuers of such securities suffer financial losses; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. All of these risks could have a material adverse impact on the Company’s financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. For additional information concerning these factors, see “Interest Rate Risk Management” and “Liquidity and Capital Resources” contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K for the year ended December 31, 2005.

Critical Accounting Policies

Accounting estimates and assumptions discussed in this section are those that the Company considers to be the most critical to an understanding of the Company’s financial statements because they inherently involve significant judgments and uncertainties. The financial information contained in these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. These critical accounting policies are those that involve subjective decisions and assessments and have the greatest potential impact on the Company’s results of operations. Management has identified its most critical accounting policies to be those relating to the following: investment securities, loan sales, allowance for loan losses, interest rate swaps and share-based compensation. The following is a summary of these accounting policies. In each area, the Company has identified the variables most important in the estimation process. The Company has used the best information available to make the estimations necessary to value the related assets and liabilities. Actual performance that differs from the Company’s estimates and future changes in the key variables could change future valuations and impact net income.

Investment Securities

Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, investment securities generally must be classified as held-to-maturity, available-for-sale or trading. The appropriate classification is based partially on the Bank’s ability to hold the securities to maturity and largely on management’s intentions with respect to either holding or selling the securities. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise, whereas for available-for-sale securities, they are recorded as a separate component of shareholders’ equity (accumulated comprehensive other income or loss) and do not affect earnings until realized. The fair values of

17

the Bank’s investment securities are generally determined by reference to quoted market prices and reliable independent sources. The Bank is obligated to assess, at each reporting date, whether there is an “other-than-temporary” impairment to the Bank’s investment securities. Such impairment must be recognized in current earnings rather than in other comprehensive income. The Bank has not identified any investment securities that were deemed to be “other-than-temporarily” impaired as of June 30, 2006 and December 31, 2005.

Loan Sales

Certain Small Business Administration (“SBA”) loans that the Bank has the intent to sell prior to maturity are designated as held for sale at origination and 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 in the period of impairment.

Allowance for Loan Losses

The Bank’s allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors include the Bank’s historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrowers’ sensitivity to interest rate movements and borrowers’ sensitivity to quantifiable external factors including commodity and finished good prices as well as acts of nature (earthquakes, floods, fires, etc.) that occur in a particular period. Qualitative factors include the general economic environment in the Bank’s markets and, in particular, the state of certain industries. Size and complexity of individual credits, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in its methodologies. As the Bank adds new products, increases the complexity of the loan portfolio, and expands the geographic coverage, the Bank will enhance the methodologies to keep pace with the size and complexity of the loan portfolio. Changes in any of the above factors could have significant impact to the loan loss calculation. The Bank believes that its methodologies continue to be appropriate given its size and level of complexity. Detailed information concerning the Bank’s loan loss methodology is contained in “Item 2, Management Discussion and Analysis of Financial Condition and Results of Operations—Allowance for Loan Losses.”

Interest Rate Swaps

As a part of its asset and liability management strategy the Bank has included derivative financial instruments, such as interest rate swaps, with the overall goal of minimizing the impact of interest rate fluctuations. In accordance with SFAS No. 133, such interest rate swap agreements are measured at fair value and reported as assets or liabilities on the consolidated statement of financial condition. When such swaps qualify for hedge accounting treatment, the change in the fair value of the swaps is recorded as a component of accumulated other comprehensive income in shareholders’ equity. However, if the swaps do not qualify for hedge accounting treatment, then the change in the fair value of the swaps is recorded as a gain or loss directly to the consolidated statements of operations as a part of non-interest expense. The Company does not use hedge accounting treatment to account for its interest rate swaps. Therefore, the difference between the market and book value of these instruments is included in current earnings. For the three and six months ended June 30, 2006

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a mark to market decrease of $30,000 and $83,000 was recognized, respectively, compared to a mark to market increase of $38,000 and a loss of $119,000 during the same periods in 2005.

The Company, in compliance with SFAS 133, includes the swap settlement payments in noninterest expense when hedge accounting treatment is not used.

Share-based Compensation

The Company adopted SFAS 123R as of January 1, 2006 as discussed in Note 5 to the consolidated financial statements. SFAS 123R requires the Company to recognize compensation expense for all share-based payments made to employees based on the fair value of the share-based payment on the date of grant. The Company elected to use the modified prospective method for adoption, which requires compensation expense to be recorded for all unvested stock options beginning in the first quarter of adoption. For all unvested options outstanding as of January 1, 2006, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, is recognized on a straight-line basis in the Consolidated Statements of Operations over the remaining vesting period. For share-based payments granted subsequent to January 1, 2006, compensation expense, based on the fair value on the date of grant, is recognized in the Consolidated Statements of Operations on a straight-line basis over the vesting period. In determining the fair value of stock options, the Company uses the Black-Scholes option-pricing model that employs the following assumptions:

• Expected volatility—based on the weekly historical volatility of our stock price, over the expected life of the option.

• Expected term of the option—based on historical employee stock option exercise behavior, the vesting terms of the respective option and a contractual life of ten years.

• Risk-free rate—based upon the rate on a zero coupon U.S. Treasury bill, for periods within the contractual life of the option, in effect at the time of grant.

• Dividend yield—calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant.

The Company’s stock price volatility and option lives involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option.

SUMMARY OF FINANCIAL DATA

Executive Overview

Consolidated net income for the second quarter of 2006, increased by $1.7 million to $7.7 million, or $0.46 per diluted share compared to $6.0 million or $0.36 per diluted share in the second quarter of 2005. The following were significant highlights related to second quarter and first half of 2006 results as compared to the corresponding periods of 2005:

• For the three months ended June 30, 2006 net interest income before provision for loan losses increased by 10.7% to $17.3 million. For the six months ended June 30, 2006 net interest income before provision for loan losses increased by 15.3% to $33.9 million. These increases were primarily due to growth in earning assets and market rate increases. Growth in earning assets was mainly driven by an increase in average net loans.

• Net interest margin for the three and six months ended June 30, 2006 declined to 4.58% and 4.49%, respectively, compared to 4.91% and 4.74% during the same periods in 2005. The changes in net interest margin were mainly attributable to a disproportional increase in time deposit and general rate increases in funding liabilities.

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• The Company’s efficiency ratio was 42.7% and 48.8% for the three and six months ended June 30, 2006, respectively, compared to 46.9% and 48.2%, respectively, for the same periods in 2005. The decrease in the efficiency ratio for the three months ended June 30, 2006 was primarily due to decreased professional service fees, including the recouping of certain legal expenses of $291,000 and an increase in noninterest income due primarily to the $2.5 million of insurance settlement proceeds recognized in other income. For the six months ended June 30, 2006, the modest increase in the efficiency ratio was primarily due to an increase in professional fees associated with the Company’s BSA compliance program and in salaries and benefits offset by the insurance settlement noted above.

• Return on average assets and return on average equity equaled 1.9% and 25.2%, respectively, for the three months ended June 30, 2006, compared to 1.7% and 24.4% during the same periods in 2005. For the six months ended June 30, 2006 return on average assets and return on average equity equaled 1.6% and 22.7%, respectively, compared to 1.7% and 23.9% during the same periods in 2005.

• Due primarily to loan growth, net write-offs and an increase in the loan loss percentage to gross loans (based on a migration analysis), the provision for loan losses for the three months and six months ended June 30, 2006 increased to $1.5 million and $1.8 million, respectively, compared to $1.1 million and $1.7 million, respectively, for the same periods in 2005.

• On June 21, 2006, the Bank entered into a settlement with one of its insurance carriers, BancInsure, wherein BancInsure agreed to pay $3.75 million to settle its past and future obligations for legal fees under its insurance policies concerning the KEIC litigation. $1.0 million of the settlement was designated for future litigation costs. Of the remaining $2.75 million approximately $230,000 was utilized to recoup legal expenses incurred in the current quarter. The balance, approximately $2.5 million, has been reflected in noninterest income (Insurance settlement – legal fees) and represents reimbursement of legal fees associated with the KEIC litigation expensed prior to the quarter ended June 30, 2006. Total expenses associated with this litigation were approximately $364,000 for the six months ended June 30, 2006.

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

• Net loans grew $88.1 million or 7.2% to $1.31 billion as of June 30, 2006 as compared to $1.22 billion as of December 31, 2005.

• Total deposits decreased $36.4 million, or 2.5% to $1.44 billion as June 30, 2006 as compared to $1.48 billion at December 31, 2005. This decrease was the result of efforts to manage the Company’s balance sheet and to improve the performance of the earning assets and funding liabilities portfolios.

• The ratio of net loans to total deposits increased to 90.5% at June 30, 2006 as compared to 82.3% December 31, 2005.

• The ratio of nonaccrual loans to total loans increased to 0.26% at June 30, 2006 compared to 0.24% at December 31, 2005. Our ratio of allowance for loan losses to total nonperforming loans decreased to 430% at June 30, 2006, as compared to 471% at December 31, 2005 and our allowance for losses to total gross loans increased to 1.13% at June 30, 2006 compared to 1.12% at December 31, 2005.

• Under the regulatory framework for prompt corrective action, the Bank continued to be “well-capitalized”.

• The Company declared its quarterly cash dividend of $0.04 per share in June 2006.

• All liquidity measures at June 30, 2006 met or exceeded the same measures at December 31, 2005.

EARNINGS PERFORMANCE ANALYSIS

As previously noted and reflected in Consolidated Statements of Operations, the Company generated net income of $7.7 million and $13.4 million during the three and six months ended June 30, 2006, respectively, compared to $6.0 million and $11.4 million during the same periods in 2005. The Company earns income from

20

two primary sources: net interest income, which is the difference between interest income generated from the successful deployment of earning assets and interest expense created by interest-bearing liabilities; and noninterest income, which is basically fees and charges earned from customer services less the operating costs associated with providing a full range of banking services to customers.

Net Interest Income and Net Interest Margin

The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and average yields and rates by asset and liability component for the three months ended June 30, 2006 and 2005:

	Three Months Ended June 30,
	2006						2005
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield(1)		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield (1)
Assets:
Interest-earning assets:
Loan (2)	$	1,244,273	$	26,767	8.63	%	$	1,068,492	$	20,043	7.52	%
Federal funds sold		49,293		595	4.84			25,263		188	2.98
Investments (3) (4)		218,259		2,355	4.60			180,441		1,579	3.59
Total interest-earning assets		1,511,825		29,717	7.88	%		1,274,196		21,810	6.87	%
Noninterest—earning assets:
Cash and due from banks		79,629						69,815
Bank premises and equipment, net		13,769						12,583
Customers’ acceptances outstanding		5,228						3,980
Accrued interest receivables		6,930						3,889
Other assets		32,613						27,830
Total noninterest-earning assets		138,169						118,097
Total assets	$	1,649,994					$	1,392,293

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

² Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in interest income were approximately $437,000 and $290,000, for the three months ended June 30, 2006 and 2005, respectively. Amortized loan fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

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

⁴ Investment yields have been computed on a tax equivalent basis for any tax-advantaged income.

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	Three Months Ended June 30,
	2006						2005
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield(5)		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield (5)
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	219,626	$	1,636	2.99	%	$	214,546	$	975	1.82	%
Savings		81,958		775	3.80			79,097		636	3.23
Time certificate of deposits over $100,000		680,426		8,419	4.96			476,913		3,546	2.98
Other time certificate of deposits		101,748		1,090	4.30			82,536		509	2.47
		1,083,758		11,920	4.45			853,092		5,666	2.66
Other borrowed funds		14,463		177	4.92			33,109		278	3.37
Long-term subordinated debentures		18,557		359	7.76			18,557		272	5.88
Total interest-bearing liabilities		1,116,778		12,456	4.47			904,758		6,216	2.76	%
Noninterest-bearing liabilities:
Demand deposits		387,106						380,479
Total funding liabilities		1,503,884			3.32	%		1,285,237			1.94	%
Other liabilities		23,686						8,154
Total noninterest-bearing liabilities		410,792						388,633
Shareholders’ equity		122,424						98,902
Total liabilities and shareholders’ equity	$	1,649,994					$	1,392,293
Net interest income			$	17,261					$	15,594
Cost of deposits					3.25	%					1.84	%
Net interest spread (6)					3.41	%					4.11	%
Net interest margin (7)					4.58	%					4.91	%

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

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

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

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The following table presents the net interest spread, net interest margin, average balances, interest income and expense, and average yields and rates by asset and liability component for the six months ended June 30, 2006 and 2005:

	Six Months Ended June 30,
	2006						2005
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield (8)		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield (8)
Assets:
Interest-earning assets:
Loan (9)	$	1,236,045	$	52,055	8.49	%	$	1,048,268	$	37,637	7.24	%
Federal funds sold		61,482		1,418	4.65			26,318		359	2.75
Investments (10) (11)		225,237		4,764	4.48			176,049		2,987	3.50
Total interest-earning assets		1,522,764		58,237	7.71	%		1,250,635		40,983	6.61	%
Noninterest—earning assets:
Cash and due from banks		77,062						68,623
Bank premises and equipment, net		13,871						12,238
Customers’ acceptances outstanding		4,636						5,238
Accrued interest receivables		6,722						4,809
Other assets		31,209						27,707
Total noninterest-earning assets		133,500						118,615
Total assets	$	1,656,264					$	1,369,250

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

⁹ Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in interest income were approximately $623,000 and $703,000, for the six months ended June 30, 2006 and 2005, respectively. Amortized loan fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

¹⁰ Investments include securities available for sale, securities held to maturity, Federal Home Loan Bank and Pacific Coast Bankers Bank stock and money market funds and interest-bearing deposits in other banks.

¹¹ Investment yields have been computed on a tax equivalent basis for any tax-advantaged income.

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	Six Months Ended June 30,
	2006						2005
	Average Balance		Interest Income/ Expense		Annualized Average Rate/ Yield(12)		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield (12)
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	211,339	$	2,996	2.86	%	$	208,713	$	1,815	1.75	%
Savings		81,317		1,519	3.77			77,183		1,236	3.23
Time certificate of deposits over $100,000		707,290		16,811	4.80			470,597		6,482	2.78
Other time certificate of deposits		101,122		2,018	4.02			82,309		954	2.34
		1,101,068		23,344	4.28			838,802		10,487	2.52
Other borrowed funds		11,964		281	4.74			34,562		532	3.10
Long-term subordinated debentures		18,557		693	7.53			18,557		538	5.84
Total interest-bearing liabilities		1,131,589		24,318	4.33			891,921		11,557	2.61	%
Noninterest-bearing liabilities:
Demand deposits		383,290						367,615
Total funding liabilities		1,514,879			3.24	%		1,259,536			1.85	%
Other liabilities		22,135						13,257
Total noninterest-bearing liabilities		405,425						380,872
Shareholders’ equity		119,250						96,457
Total liabilities and shareholders’ equity	$	1,656,264					$	1,369,250
Net interest income			$	33,919					$	29,426
Cost of deposits					3.17	%					1.75	%
Net interest spread (13)					3.38	%					4.00	%
Net interest margin (14)					4.49	%					4.74	%

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

¹³ Represents the weighted average yield on interest-earning assets less the weighted average cost of interest-bearing liabilities.

¹⁴ Represents net interest income (before provision for loan losses) as a percentage of average interest-earning assets.

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

	Three Months Ended June 30, 2006 vs. 2005 Increase (Decrease) Due to Change In									Six Months Ended June, 2006 vs. 2005 Increase (Decrease) Due to Change In
	Volume			Rate (15)			Total			Volume			Rate (15)			Total
Earning assets:
Interest income:
Loans (16)	$	3,553		$	3,171		$	6,724		$	7,336		$	7,082		$	14,418
Federal funds sold		499			(92	)		407			1,165			(106	)		1,059
Investments (17)		367			409			776			944			833			1,777
Total earning assets		4,419			3,488			7,907			9,445			7,809			17,254
Interest expense:
Deposits and borrowed funds:
Money market and super NOW accounts		25			605			630			23			1,130			1,153
Savings deposits		24			114			138			69			213			282
Time Certificates of deposits		2,020			3,466			5,486			4,411			7,011			11,422
Other borrowings		—			87			87			—			155			155
Long-term subordinated debentures		(547	)		446			(101	)		(1,285	)		1,034			(251	)
Total interest-bearing liabilities		1,522			4,718			6,240			3,218			9,543			12,761
Net interest income	$	2,897		$	(1,230	)	$	1,667		$	6,227		$	(1,734	)	$	4,493

¹⁵ Average rates/yields for these periods have been annualized.

¹⁶ Loans are net of the allowance for loan losses, deferred fees, and discount on SBA loans retained. Loan fees included in interest income were approximately $437,000 and $290,000, for the three months ended June 30, 2006 and 2005, respectively, and $623,000 and $703,000 for the six months ended June 30, 2006, respectively. Amortized loan fees have been included in the calculation of net interest income. Nonaccrual loans have been included in the table for computation purposes, but the foregone interest of such loans is excluded.

¹⁷ Investment yields have been computed on a tax equivalent basis for any tax-advantaged income. 100% of earnings on municipal obligations are not taxable for state purposes and 70% of dividend income is not subject to federal income tax.

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

Total interest and dividend income for the three and six months ended June 30, 2006 was $29.7 million and $58.2 million, respectively, compared with $21.8 million and $41.0 million, respectively, for the same periods in 2005. These increases were primarily due to growth in earning assets and market rate increases. Growth in earning assets was mainly driven by an increase in average net loans. Average net loans increased by $175.8 million and $187.8 for the three and six months ended June 30, 2006, respectively, compared to the same periods in 2005.

Total interest expense for the three and six months ended June 30, 2006 increased by $6.2 million or 100.4% and $12.8 million or 110.4%, respectively, compared to the same periods in 2005. These increases were primarily

25

due to interest-bearing deposit growth and increases in market rates set by the Federal Reserve Board. Average interest bearing liabilities increased by $212.0 million and $239.7 million for the three and six months ended June 30, 2006, respectively, compared to the same periods in 2005.

Net interest income before provision for loan losses increased by $1.7 million for the three months ended June 30, 2006 compared to the same period in 2005. Of the $1.7 million increase, $2.9 million was due to volume changes offset by a $1.3 million decrease due to rate changes. Due to market rate increases and growth in loan portfolio, the average yield on loans for the second quarter of 2006 increased to 8.63% compared to 7.52% for the like quarter in 2005, an increase of 111 basis points. The average investment portfolio for the second quarter of 2006 and 2005 was $218.3 million and $180.4 million, respectively. The average yields on the investment portfolio as of the second quarter of 2006 and 2005 were 4.60% and 3.59%, respectively.

Net interest income before provision for loan losses increased by $4.5 million for the six months ended June 30, 2006 compared to the same period in 2005. Of the $4.5 million increase, $6.2 million was due to volume changes offset by a $1.7 million decrease due to rate changes. Helped by market rate increases and growth in loan volume, the average yield on loans for the six months ended June 30, 2006 increased to 8.49% compared to 7.24% for the like quarter in 2005, an increase of 125 basis points. The average investment portfolio for the six months ended June 30, 2006 and 2005 was $225.2 million and $176.0 million, respectively. The average yields on the investment portfolio as of the six months ended June 30, 2006 and 2005 were 4.48% and 3.50%, respectively.

Interest margin for the second quarter of 2006 decreased to 4.58% compared to 4.91% for the same quarter of 2005. For the six months ended June 30, 2006 interest margin decreased to 4.49% compared to 4.74% for the same period in 2005. The changes in net interest margin were mainly attributable to a disproportional increase in time deposits and general rate increases in funding liabilities. Average time deposits represented 72.2% and 73.4% of average total deposits for the three and six months ended June 30, 2006, respectively, compared to 65.6% and 65.9% for the same periods in 2005.

Provision for Loan Losses

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

Due primarily to loan growth, net write-offs and an increase in the loan loss percentage to gross loans (based on a migration analysis), the provision for loan losses for the three months and six months ended June 30, 2006 increased to $1.5 million and $1.8 million, respectively, compared to $1.1 million and $1.7 million, respectively, for the same periods in 2005. Management believes that the $1.8 million loan loss provision was adequate for the first six months of 2006. While management believes that the allowance for loan losses of 1.13% of total loans at June 30, 2006 was adequate, future additions to the allowance will be subject to continuing evaluation of the estimation, inherent and other known risks in the loan portfolio. The procedures for monitoring the adequacy of the allowance, and detailed information on the allowance, are included below in “Allowance for Loan Losses.”

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Noninterest Income

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

Noninterest Income

	Three Months Ended June 30,								Six Months Ended June 30,
	2006				2005				2006				2005
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)								(Dollars in thousands)
Customer service fees	$	2,084	27.04	%	$	2,428	48.42	%	$	4,214	33.15	%	$	4,663	46.39	%
Fee income from trade finance transactions		797	10.34			929	18.53			1,750	13.77			1,831	18.22
Wire transfer fees		237	3.08			251	5.01			453	3.56			455	4.53
Gain on sale of loans		1,123	14.57			592	11.81			1,797	14.13			1,265	12.59
Net gain on sale of securities available for sale		—	0.00			1	.02			—	0.00			51	.51
Other loan related service fees		414	5.37			419	8.36			968	7.61			859	8.55
Insurance settlement—legal fees		2,520	32.70			—	0.00			2,520	19.82			0.00	—
Other income		532	6.90			394	7.85			1,012	7.96			927	9.21
Total noninterest income	$	7,707	100.00	%	$	5,014	100.00	%	$	12,714	100.00	%	$	10,051	100.00	%
As a percentage of average earning assets			2.04	%			1.58	%			1.68	%			1.62	%

For the three and six months ended June 30, 2006, noninterest income was $7.7 million and $12.7 million, respectively, compared to $5.0 million and $10.1 million, respectively, for the same periods in 2005. For the three months and six months ended June 30, 2006 noninterest income, as a percentage of average earning assets, increased to 2.04% and 1.68%, respectively, from 1.58% and 1.62%, respectively, for the same periods in 2005. The primary sources of recurring noninterest income continue to be customer service fee charges on deposit accounts, fees from trade finance transactions and gain on sale of loans.

Customer service fees for the three and six months ended June 30, 2006 decreased by $344,000 or 14.2% and $449,000, or 9.6%, respectively, compared to the same periods last year. These decreases were due primarily to management’s decision to close certain customer operating accounts whose activities, while generating service charges, were inconsistent with the Company’s risk management process and requirements. The decision was consistent with the Company’s intention of maintaining full compliance with all risk management policies and regulatory requirements.

Fee income from trade finance transactions for the three and six months ended June 30, 2006 decreased by $132,000, or 14.2% and $81,000, or 4.4%, respectively, compared to the same periods in 2005. These decreases were due to less international trade activity by the Company’s customers.

The Company recorded a $1.1 million and $592,000 gain on sale of loans for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005 the Company recorded a $1.8 million and $1.3 million, gain on sale of loans, respectively. The increase in gain on sale of loans is primarily due to the mix of loans sold. For the three months ended June 30, 2006 the Company sold approximately $13.9 million of its unguaranteed portion of SBA loans. A substantial portion of the gain generated from the sale of these loans occurs from the recognition of the deferred gain that resulted from the sale of the guaranteed portion of the loan. For the six months ended June 30, 2006 and 2005, the Company sold $24.8 million and $26.5, respectively, comprised of guaranteed and unguaranteed portions of SBA loans.

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Insurance settlement—legal fees represents a settlement with our insurance carrier regarding coverage of legal fees associated with our ongoing litigation with KEIC. The total settlement amounted to $3.75 million of which $1.0 million was designated for future litigation expenses. Of the remaining $2.75 million approximately $230,000 was utilized to recoup expenses incurred in the current quarter. The balance, approximately $2.5 million, was recognized as other income and represents reimbursement of legal fees expensed prior to the quarter ended June 30, 2006.

Noninterest Expense

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

Noninterest Expense

	Three Months Ended June 30,									Six Months Ended June 30,
	2006				2005					2006					2005
	Amount		Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total
	(Dollars in thousands)									(Dollars in thousands)
Salaries and benefits	$	5,315	49.83	%	$	4,532		46.91	%	$	10,878		47.80	%	$	8,977		47.17	%
Occupancy		896	8.40			854		8.84			1,779		7.81			1,569		8.24
Furniture, fixtures, and equipment		509	4.77			407		4.21			969		4.26			815		4.28
Data processing		541	5.07			477		4.94			1,083		4.80			942		4.95
Professional service fees		354	3.32			1,108		11.47			2,414		10.61			1,906		10.02
Business promotion and advertising		1,123	10.53			666		6.89			1,968		8.64			1,316		6.92
Stationery and supplies		167	1.57			236		2.44			326		1.43			413		2.17
Telecommunications		165	1.54			170		1.76			338		1.48			299		1.57
Postage and courier service		195	1.83			187		1.94			336		1.47			350		1.89
Security service		239	2.24			197		2.04			502		2.20			372		1.95
Loss on termination of interest rate swaps		—	0.00			—		0.00			—		0.00			306		1.61
Loss on interest rate swaps		30	0.28			(38	)	(.39	)		83		0.36			119		.63
Other operating expenses		1,133	10.62			864		8.95			2,081		9.14			1,646		8.65
Total noninterest expense	$	10,667	100.00	%	$	9,660		100.00	%	$	22,757		100.00	%	$	19,030		100.00	%
As a percentage of average earning assets			2.83	%				3.04	%		3.01	%				3.07	%
Efficiency ratio			42.7	%				46.9	%		48.8	%				48.2	%

For the second quarter of 2006, noninterest expense increased 10.4% to $10.7 million, compared to $9.7 million for the same quarter in 2005 and for the six months ended June 30, 2006 increased 19.6% to $22.8 million, compared to $19.0 million, respectively, for the same periods in 2005. These increases in noninterest expense were attributable to increases in salaries and benefits, business promotions and advertising and other operating expenses. Noninterest expense as a percentage of average earning assets was 2.83% and 3.01% for three and six months ended June 30, 2006, respectively, compared to 3.04% and 3.07%, respectively, for same periods in 2005.

The Company’s efficiency ratio is defined as the ratio of noninterest expense to the sum of net interest income before provision for loan losses and noninterest income. The Company’s efficiency ratio was 42.7% and 48.8% for the three and six months ended June 30, 2006, respectively, compared to 46.9% and 48.2%, respectively, for the same periods in 2005. The decrease in the efficiency ratio for the three months ended June 30, 2006 was primarily due to decreased professional service fees, including the recouping of certain legal

28

expenses (see discussion in noninterest income) of $291,000 and an increase in noninterest income due primarily to the $2.5 million of insurance settlement proceeds recognized in other income. For the six months ended June 30, 2006, the modest increase in the efficiency ratio was primarily due to an increase in professional fees associated with the Company’s BSA compliance program and in salaries and benefits offset by the insurance settlement noted above.

Salaries and benefits increased 17.3% and 21.2% to $5.3 million and $10.9 million for the three and six months ended June 30, 2006, respectively, compared to $4.5 million and $9.0 million for the same periods in 2005. This increase was due in part to expenses associated with the increased personnel to staff the new branches, the increased hiring activity of highly qualified personnel and normal salary increases.

Occupancy expenses increased by 4.9% and 13.4% to $896,000 and $1.8 million for the three and six months ended June 30, 2006, respectively, compared $854,000 and $1.6 million in same periods last year. This increase was due mainly to the opening of the Irvine, California branch in September 2005. Additionally, the opening of this branch was a major contributor to the increase in furniture, fixture, and equipment expense, which totaled $509,000 and $969,000 for the three and six months ended June 30, 2006, respectively, an increase of 25.1% and 18.9%, respectively, compared to $407,000 and $815,000, respectively, for the same periods in 2005.

Professional fees were $354,000 and $2.4 million for the three and six months ended June 30, 2006, respectively, compared to $1.1 million and $1.9 million, respectively, for the same periods in 2005. For the three months ended June 30, 2006 the decrease was primarily due to substantial reductions in accounting and consulting costs and the recouping of legal expenses associated with the settlement of litigation with our insurance carrier (see discussion in noninterest income). The increase for the six months ended June 30, 2006 was due to primarily to non-recurring professional service fees attributable to expenses related to resolving issues identified with the Company’s BSA compliance program (incurred during the first quarter of 2006), offset by the cost reductions advanced in the second quarter of 2006.

Business promotion and advertising expenses increased by 68.6% and 49.5% to $1.1 million and $2.0 for the three and six months ended June 30, 2006, respectively as compared to $666,000 and $1.3 million, respectively, for same periods in 2005. These increases were mainly due to the increased promotional activity for the Company’s products, expanding LPO loan production and our 20^th anniversary celebration.

During the six months ended June 30, 2005, the Company terminated one of its longer maturity interest rate swaps and recorded a net loss of $306,000. There was no swap terminations or associated losses for the same period of 2006. For the three and six months ended June 30, 2006, the Company recorded a loss of $30,000 and $83,000, respectively, compared to a gain of $38,000 and a loss of $119,000, respectively, for the same periods in 2005. These fluctuations were due primarily to an increase in the net interest settlement due under the remaining swap, offset by an increase in the underlying market value.

For the three and six months ended June 30, 2006, other operating expenses increased 31.1% and 26.4% to $1.1 million and $2.1 million, respectively, as compared to $864,000 and $1.6 million, respectively, for the same periods in 2005. The increase for the three months ended June 30, 2006 was mainly due to: (1) fixed assets disposals that resulted in an additional expense of $113,000, (2) an increase of $47,000 associated with the amortization of the Bank’s CRA investments, (3) an increase of $71,000 in directors and officer’s insurance premiums, (4) an increase in the provision for off balance sheet credit risks in the amount of $80,000, offset in part by a $32,000 reduction in loan related expenses and $12,000 in corporate administrative expenses.

For the six months ended June 30, 2006, the increase was primarily attributable to: (1) an increase in director and officer’s insurance premiums in the amount of $98,000, (2) auto and travel costs increasing by $45,000, (3) an increase of $91,000 in the amortization of the Bank’s CRA investments, (4) an increase of $58,000 in the provision of off balance sheet credit risks, (5) an increase in regulatory assessments in the amount of $24,000 and (6) the $113,000 expense associated with fixed asset disposals noted above.

29

The remaining noninterest expenses include such items as data processing, stationery and supplies, telecommunications, postage, courier service and security service expenses. For the three and six months ended June 30, 2006, these noninterest expenses amounted to $1.3 million and $2.6 million, respectively, compared to $1.3 million and $2.4 million, respectively, for the same periods in 2005. The increase for the six months ended June 30, 2006, was mainly attributable to increased data processing costs and security services offset by a reduction in stationery and supply costs. The increases in data processing costs and security services are consistent with the opening of the Irvine, California branch noted above.

Provision for Income Taxes

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

For the three months ended June 30, 2006 and 2005, the provision for income taxes was $5.1 million and $3.9 million representing effective tax rates of 39.9% and 39.3%, respectively. For the six months ended June 30, 2006 and 2005, the provision for income taxes was $8.7 million and $7.3 million, respectively, representing an effective tax rate of 39.2% and 39.1%, respectively. The primary reasons for the difference from the federal statutory tax rate of 35% are the inclusion of state taxes and reductions related to tax favored investments in low-income housing, municipal obligations and agency preferred stocks. The Company reduced taxes utilizing the tax credits from investments in the low-income housing projects in the amount of $294,000 for the six months ended June 30, 2006 compared to $147,000 for the same period in 2005.

Deferred income tax assets or liabilities reflect the estimated future tax effects attributable to differences as to when certain items of income or expense are reported in the financial statements versus when they are reported in the tax return. The Company’s deferred tax asset was $10.6 million as of June 30, 2006, and $10.2 million as of December 31, 2005. As of June 30, 2006, the Company’s deferred tax asset was primarily due to book reserves for the allowance for loan losses and impairment losses on preferred stock.

FINANCIAL CONDITION ANALYSIS

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

The Company invests its excess available funds from daily operations in primarily in overnight Fed Funds and Money Market Funds. Money Market Funds are composed of mostly government funds and high quality short-term commercial paper. The Company can redeem the funds at any time. As of June 30, 2006 and December 31, 2005, the amounts invested in Fed Funds were $7.1 million and $58.5 million, respectively. The average yield earned on these funds was 4.65% for the six months ended June 30, 2006 compared to 2.75% for the same period last year.

30

Investment Portfolio

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

Investment Portfolio

	As of June,				As of December 31,
	2006				2005
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	996	$	995	$	498	$	497
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		80,024		78,693		131,719		130,483
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		66,763		64,756		70,959		69,882
U.S. Government sponsored enterprise preferred stock		4,865		5,607		4,865		5,173
Corporate trust preferred securities		11,000		11,124		11,000		11,054
Mutual Funds backed by adjustable rate mortgages		4,500		4,342		3,000		2,961
Fixed rate collateralized mortgage obligations		2,499		2,431		2,817		2,800
Corporate debt securities		2,195		2,161		3,194		3,173
Total available for sale	$	172,842	$	170,109	$	228,052	$	226,023
Held to Maturity:
U.S. Government agencies and U.S. Government sponsored enterprise mortgage-backed securities	$	3,551	$	3,436	$	4,130	$	4,053
Municipal securities		7,439		7,408		6,922		6,961
Total held to maturity	$	10,990	$	10,844	$	11,052	$	11,014
Total investment securities	$	183,832	$	180,953	$	239,104	$	237,037

As of June 30, 2006, investment securities totaled $181.1 million or 11.0% of total assets, compared to $237.1 million or 14.3% of total assets as of December 31, 2005. The decrease in the investment portfolio was due to liquidity utilized to fund new loans.

As of June 30, 2006, available-for-sale securities totaled $170.1 million, compared to $226.0 million as of December 31, 2005. Available-for-sale securities as a percentage of total assets decreased to 10.3% as of June 30, 2006 compared to 13.6% at December 31, 2005. Held-to-maturity securities decreased to $11.0 million as of June 30, 2006, compared to $11.1 million as of December 31, 2005. The composition of available-for-sale and held-to-maturity securities was 94.0% and 6.0% as of June 30, 2006, compared to 95.3% and 4.7% as of December 31, 2005, respectively. For the three months and six months ended June 30, 2006, the yield on the average investment portfolio was 4.60% and 4.48%, respectively, as compared to 3.59% and 3.50%, respectively, for the same periods of 2005. The Company used the proceeds from the decrease in the investment portfolio to fund loan growth.

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The following table summarizes, as of June 30, 2006, the maturity characteristics of the investment portfolio, by investment category. Expected remaining maturities may differ from remaining contractual maturities because obligors may have the right to prepay certain obligations with or without penalties.

Investment Maturities and Repricing Schedule

	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in thousands)
Available for Sale (Fair Value):
U.S. Governmental agencies securities and U.S Government sponsored enterprise securities	$	48,524	3.57	%	$	31,164	3.73	%	$	—	0.00	%		—	0.00	%	$	79,688	3.64	%
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		159	4.99			1,579	4.90			6,903	4.82			56,115	4.31			64,756	4.38
U.S Government sponsored enterprise preferred stock		—	0.00			—	0.00			—	0.00			11,124	6.82			11,124	6.82
Corporate trust preferred securities		—	0.00			5,607	4.36			—	0.00			—	0.00			5,607	4.36
Mutual Funds backed by adjustable rate mortgages		4,342	4.53			—	0.00			—	0.00			—	0.00			4,342	4.53
Fixed rate collateralized mortgage obligations		—	0.00			—	0.00			—	0.00			2,431	4.71			2,431	4.71
Corporate debt securities		—	0.00			2,161	4.84			—	0.00			—	0.00			2,161	4.84
Total available for sale	$	53,025	3.65	%	$	40,511	3.92	%	$	6,903	4.82	%	$	69,670	4.72	%	$	170,109	4.21	%
Held to Maturity (Amortized Cost):
U.S. Government agencies and U.S. Government sponsored enterprise mortgage-backed securities	$	—	0.00	%	$	—	0.00	%		—	0.00	%	$	3,551	4.18	%	$	3,551	4.18	%
Municipal securities		380	3.90			2,726	4.23			3,237	3.97			1,096	3.8			7,439	4.04
Total held to maturity	$	380	3.90	%	$	2,726	4.23	%	$	3,237	3.97	%	$	4,647	4.09	%	$	10,990	4.08	%
Total investment securities	$	53,405	3.65	%	$	43,237	3.94	%	$	10,140	4.55	%	$	74,317	4.69	%	$	181,099	4.20	%

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The following table shows the Company’s investments with gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2006.

	As of June 30, 2006
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars in thousands)
U.S. Governmental and U.S. Government sponsored enterprise agencies securities
	$	21,940	$	(52	)	$	57,747	$	(1,280	)	$	79,687	$	(1,332	)
U.S. Governmental agencies and U.S. Government sponsored enterprise mortgage-backed securities
		40,076		(1,131	)		30,454		(1,061	)		70,530		(2,192	)
Municipal securities and corporate debt securities		3,558		(66	)		1,160		(35	)		4,718		(101	)
Total	$	65,574	$	(1,249	)	$	89,361	$	(2,376	)	$	154,935	$	(3,625	)

As of June 30, 2006, the Company has a total fair value of $154.9 million of securities, with unrealized losses of $3.6 million. We believe these unrealized losses are due to a temporary condition, primarily increases in interest rates, and do not reflect a deterioration of credit quality of the issuer. The market value of securities that have been in a continuous loss position for 12 months or more totaled $89.3 million, with unrealized losses of $2.4 million.

All individual securities that have been in a continuous unrealized loss position for twelve months or longer at June 30, 2006 had investment grade ratings upon purchase. The issuers of these securities have not, to our knowledge, established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status at June 30, 2006. These securities have decreased in value since their purchase dates as market interest rates have increased. However, the Company has the ability, and management intends, to hold these securities until their fair values recover to cost.

Loan Portfolio

The following table sets forth the composition of the Company’s loan portfolio, including loans held for sale, as of the dates indicated:

	June 30, 2006				December 31, 2005
	Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
Real Estate:
Construction	$	18,260	1.38	%	$	4,713	.38	%
Commercial (18)		858,331	64.77			776,725	62.80
Commercial (19)		244,557	18.45			243,052	19.65
Trade Finance		75,351	5.69			90,370	7.30
SBA (20)		53,621	4.05			49,070	3.97
Other (21)		343	.03			1,473	0.12
Consumer		74,668	5.63			71,499	5.78
Total Gross Loans		1,325,131	100.00	%		1,236,902	100.00	%
Less:
Allowance for Losses		14,964				13,871
Deferred Loan Fees		1,828				1,595
Discount on SBA Loans Retained		1,088				2,287
Total Net Loans and Loans Held for Sale	$	1,307,251			$	1,219,149

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

¹⁹ Includes advances on trust receipts, clean advances, cash advances, acceptances discounted, and documentary negotiable advances under commitments.

²⁰ Balance includes SBA loans held for sale of $26.7 million and $12.7 million, at the lower of cost or market, at June 30, 2006 and December 31, 2005, respectively.

²¹ Consists of transactions in process and overdrafts.

The Company’s gross loans grew $88.2 million during the six months ended June 30, 2006. Net loans increased $88.1 million, or 7.2%, to $1.3 billion at June 30, 2006, as compared to $1.2 billion at December 31, 2005. The increase in loans was funded primarily through liquidity created from principal reductions in the investment portfolio and FHLB borrowings. While management believes that it can continue to leverage the Company’s current infrastructure to achieve similar or greater growth in loans for the remainder of the year, no assurance can be given that such growth will occur. Net loans as of June 30, 2006, represented 79.3% of total assets, compared to 73.4% as of December 31, 2005.

The growth in net loans is comprised primarily of net increases in commercial construction loans of $13.5 million or 287.2%, real estate commercial loans of $81.6 million or 10.5%, SBA loans of $4.5 million or 9.2%, offset by a reduction in trade finance loans of $15.0 million or 16.6%.

As of June 30, 2006, commercial real estate remained the largest component of the Company’s total loan portfolio with loans totaling $858.3 million, representing 64.8% of total loans, compared to $776.7 million or 62.8% of total loans at December 31, 2005. The increase in commercial real estate loans resulted from a continued demand for the Company’s commercial loan products within its business sector.

Commercial business loans were consistent at $244.6 million as of June 30, 2006, compared to $243.1 million at December 31, 2005.

Trade finance loans decreased by $15.0 million or 16.6% to $75.4 million as of June 30, 2006 from $90.3 million at December 31, 2005. This decrease in trade finance loans was mainly due to decreased activity in documentary negotiable advances.

The Company sold $24.8 million of SBA loans during the six months ended June 30, 2006, and retained the obligation to service the loans for a servicing fee and to maintain customer relations. As of June 30, 2006, the Company was servicing $152.2 million of sold SBA loans, compared to $149.4 million of sold SBA loans as of December 31, 2005. Despite the sale of SBA loans, the Company’s SBA portfolio increased to $53.6 million at June 30, 2006, an increase of $4.5 million, or 9.2%, compared to December 31, 2005.

The Bank has determined it has no reportable foreign credit risk.

Nonperforming Assets

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

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

	June 30, 2006			December 31, 2005			June 30, 2005
	(Dollars in thousands)
Nonaccrual loans:
Real estate:
Construction	$	—		$	1,632		$	1,695
Commercial		355			—			—
Commercial		2,249			598			900
Consumer		191			113			67
Trade Finance		—			—			—
SBA		687			600			370
Total nonperforming loans		3,482			2,943			3,032
Other real estate owned		—			—			—
Total nonperforming assets	$	3,482		$	2,943		$	3,032
Nonperforming loans as a percent of total loans		0.26	%		0.24	%		0.27	%
Nonperforming assets as a percent of total loans and other real estate owned		0.26	%		0.24	%		0.27	%
Allowance for loan losses to nonperforming loans		429.75	%		471.32	%		413.58	%

Management’s classification of a loan as nonaccrual or restructured is an indication that there is reasonable doubt as to the full collectibility of principal and/or interest on the loan. At this point, the Company stops recognizing interest income on the loan and reverses any uncollected interest that had been accrued but unpaid. If the loan deteriorates further due to a borrower’s bankruptcy or similar financial problems, unsuccessful collection efforts or a loss classification (by the Company, regulators or auditors), the remaining balance of the loan is then charged off. These loans may or may not be collateralized, but collection efforts are continuously pursued.

Total nonperforming loans increased by $500,000 to $3.5 million as of June 30, 2006 from $3.0 million as of June 30, 2005. This increase was primarily the result of additions to nonaccrual status in the Bank’s commercial real estate and commercial loan portfolios that are sensitive to rising interest rates. These increases were offset in part by the sale of the real estate construction nonaccrual loans in the amount of $1.6 million.

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

The following table provides information on impaired loans as of:

	June 30, 2006		December 31, 2005
	(Dollars in thousands)
Impaired loans with specific reserves	$	—	$	1,632
Impaired loans without specific reserves		7,811		3,872
Total impaired loans		7,811		5,504
Allowance on impaired loans		—		(41	)
Net recorded investment in impaired loans	$	7,811	$	5,463

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	Six Months Ended June 30, 2006		Twelve Months Ended December 31, 2005
Average total recorded investment in impaired loans	$	7,263	$	5,532
Interest income recognized on impaired loans on a cash basis	$	266	$	322

Allowance for Loan Losses

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

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

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

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

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

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

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

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

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

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

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

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

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

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The process of assessing the adequacy of the allowance for loan losses involves judgmental discretion, and eventual losses may differ from even the most recent estimates. To assist management in monitoring the loan loss allowance the Company’s independent loan review consultants review the allowance as an integral part of their examination process.

The following table sets forth the composition of the allowance for loan losses as of June 30, 2006 and December 31, 2005:

	June 30, 2006		December 31, 2005
	(Dollars in thousands)
Composition of Allowance for Loan Losses
Specific (Impaired loans)	$	—	$	41
Formula (non-homogeneous)		14,586		13,481
Homogeneous		378		349
Total allowance for loan losses	$	14,964	$	13,871

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

	Six Months Ended June 30, 2006			Year Ended December 31, 2005			Six Months Ended June 30, 2005
	(Dollars in thousands)
Allowance for Loan Losses
Balances
Average total loans outstanding during the period (22)	$	1,250,187		$	1,123,880		$	1,059,963
Total loans outstanding at end of period (22)	$	1,322,215		$	1,234,615		$	1,122,790
Allowance for Loan Losses:
Balance at beginning of period	$	13,871		$	11,227		$	11,227
Charge-offs:
Real estate		258			—			—
Commercial		783			623			309
Consumer		126			227			117
SBA		35			37			2
Total charge-offs		1,202			887			428
Recoveries
Real estate		423			—			—
Commercial		34			102			15
Consumer		60			12			11
Trade finance		—			23			—
SBA		3			24			13
Total recoveries		520			161			39
Net loan charge-offs		682			726			389
Provision for loan losses		1,775			3,370			1,700
Balance at end of period	$	14,964		$	13,871		$	12,538
Ratios:
Net loan charge-offs to average loans		0.05	%		0.06	%		0.04	%
Provision for loan losses to average total loans		0.14			0.30			0.16
Allowance for loan losses to gross loans at end of period		1.13			1.12			1.12
Allowance for loan losses to total nonperforming loans		429.75			471.32			413.58
Net loan charge-offs to allowance for loan losses at end of period		4.56			5.23			3.10
Net loan charge-offs to provision for loan losses		38.42			21.54			22.88

²² Total loans are net of deferred loan fees and discount on SBA loans sold.

37

Due primarily to loan growth, net write-offs and an increase in the loan loss percentage to gross loans (based on a migration analysis), the allowance for loan losses grew to $15.0 million as of June 30, 2006 compared to $13.9 million at December 31, 2005. The Company recorded a provision of $1.5 million and $1.8 million for the three and six months ended June 30, 2006, respectively, compared to $1.1 million and $1.7 million, respectively, for the same periods of 2005. For the six months ended June 30, 2006, the Company charged off $1.2 million and recovered $520,000, resulting in net charge-offs of $680,000 compared to net charge-offs of $389,000 for the same period in 2005. The allowance for loan losses increased to 1.13% of total gross loans at June 30, 2006 and from 1.12% at December 31, 2005. In comparison to June 30, 2005, the allowance for loan losses increased 0.01% from 1.12%. The Company provides an allowance for the new credits based on the migration analysis discussed previously.

Management believes the level of allowance as of June 30, 2006 is adequate to absorb the estimated losses from any known or inherent risks in the loan portfolio and the loan growth during the period. However, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances may not require increased provisions for loan losses in the future.

Because of the slight growth in nonperforming assets, the ratio of the allowance for loan losses to total nonperforming loans decreased to 430% as of June 30, 2006 compared to 471% as of December 31, 2005. However, the ratio increased modestly from 414% at June 30, 2005.

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

Deposits

An important balance sheet component affecting the Company’s net interest margin is its deposit base. The Company’s average interest bearing deposit cost increased to 4.29% for the six months of 2006, compared to 2.52% for the same period of 2005. This increase is primarily due to the increases in short term rates set by the Federal Reserve Board, which caused the average rates paid on deposits and other liabilities to increase.

The Company can deter, to some extent, the rate sensitive customers who demand high cost CDs because of local market competition by using wholesale funding sources. However, as of June 30, 2006 the Company had no brokered CD’s. In addition, the Company had no time certificates of deposits with the State of California as of June 30, 2006, compared to $80.0 million at December 31, 2005.

Deposits consist of the following as of the dates indicated:

	June 30, 2006		December 31, 2005
	(Dollars in thousands)
Demand deposits (noninterest-bearing)	$	409,380	$	395,050
Money market accounts and NOW		215,931		221,083
Savings		82,178		81,654
Time deposits
Less than $100,000		98,711		97,433
$100,000 or more		637,958		685,336
Total	$	1,444,158	$	1,480,556

Total deposits decreased by $36.4 million or 2.5% to $1.44 billion at June 30, 2006 compared to $1.48 billion at December 31, 2005. This decrease was the result of efforts to manage the Company’s balance sheet and to improve the performance of the earning assets and funding liabilities portfolios.

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Time deposits by maturity dates are as follows at June 30, 2006:

	$100,000 or Greater		Less Than $100,000		Total
	(Dollars in thousands)
2006	$	496,595	$	73,867	$	570,462
2007		133,404		23,978		157,382
2008		4,273		657		4,930
2009		1,332		170		1,502
2010 and thereafter		2,354		39		2,393
Total	$	637,958	$	98,711	$	736,669

Information concerning the average balance and average rates paid on deposits by deposit type for the three and six months ended June 30, 2006 and 2005 is contained in the tables above in the section entitled “Net Interest Income and Net Interest Margin.”

Other Borrowed Funds

The Company regularly uses Federal Home Loan Bank of San Francisco (“FHLB”) advances and short-term borrowings, which consist of notes issued to the U.S. Treasury to manage Treasury Tax and Loan payments. The Company’s outstanding FHLB borrowing was $35.0 million and $27.1 million, at June 30, 2006 and December 31, 2005, respectively. This increase is due to funding needs based on loan production. Notes issued to the U.S. Treasury amounted to $1.2 million as of June 30, 2006 compared to $1.1 million as of December 31, 2005. The total borrowed amount outstanding at June 30, 2006 and December 31, 2005 was $36.2 million and $28.6 million, respectively.

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

Contractual Obligations

The following table presents, as of June 30, 2006, the Company’s significant fixed and determinable contractual obligations, within the categories described below, by payment date. These contractual obligations, except for the operating lease obligations, are included in the Consolidated Statements of Financial Condition. The payment amounts represent those amounts contractually due to the recipient.

	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(Dollars in thousands)
Debt obligations*	$	29,376	$	4,977	$	1,037	$	19,334	$	54,724
Deposits		1,255,953		118,623		69,332		250		1,444,158
Operating lease obligations		18		5,391		3,415		3,218		12,042
Total contractual obligations	$	1,285,347	$	128,991	$	73,784	$	22,802	$	1,510,924

* Includes principal payment only

LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT

Liquidity

Liquidity is the Company’s ability to maintain sufficient cash flow to meet deposit withdrawals and loan demands and to take advantage of investment opportunities as they arise. The Company’s principal sources of liquidity have been growth in deposits, proceeds from the maturity of securities, and repayments from loans. To

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supplement its primary sources of liquidity, the Company maintains contingent funding sources, which include a borrowing capacity of up to 25% of total assets upon providing collateral with the Federal Home Loan Bank of San Francisco, access to the discount window of the Federal Reserve Bank of San Francisco, a deposit facility with the California State Treasurer upon providing collateral, and unsecured Fed funds lines with correspondent banks.

As of June 30, 2006, the Company’s liquidity ratio, which is the ratio of available liquid funds to net deposits and short-term liabilities, was 11.7%. Total available liquidity as of that date was $173.0 million, consisting of excessive cash holdings or balances in due from banks, overnight Fed funds sold, money market funds and unpledged available for sale securities. The Company’s net non-core fund dependence ratio was 41.6% under applicable regulatory guidelines, which assumes all certificates of deposit over $100,000 (“Jumbo CD’s”) as volatile sources of funds. The Company has identified approximately $150.0 million of Jumbo CD’s as stable and core sources of funds based on past historical analysis. The net non-core fund dependence ratio was 33.2% with the assumption of $150.0 million as stable and core fund sources and certain portion of MMDA as volatile. The net non-core fund dependence ratio is the ratio of net short-term investment less non-core liabilities divided by the long-term assets.

Market Risk/Interest Rate Risk Management

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

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

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

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

Interest Rate Risk

Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change. In general, the interest the Company earns on its assets and pays on its liabilities are established contractually for

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specified periods of time. Market interest rates change over time and if a financial institution cannot quickly adapt to changes in interest rate, it may be exposed to volatility in earnings. For instance, if the Company were to fund long-term fixed rate assets with short-term variable rate deposits, and interest rates were to rise over the term of the assets, the short-term variable deposits would rise in cost, adversely affecting net interest income. Similar risks exist when rate sensitive assets (for example, prime rate based loans) are funded by longer-term fixed rate liabilities in a falling interest rate environment.

In order to monitor and manage interest rate risk, management utilizes quarterly gap analysis and quarterly simulation modeling as a tool to determine the sensitivity of net interest income and economic value sensitivity of the balance sheet. These techniques are complementary and both are used to provide a more accurate measurement of interest rate risk. The Company also uses interest rate swaps to hedge the interest rate risk of specifically identified variable rate loans.

Gap analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice during a particular time interval. A liability sensitive position results when more liabilities than assets reprice or mature within a given period. Conversely, an asset sensitive position results when more assets than liabilities reprice within a given period. As of June 30, 2006, the Company was asset sensitive with a positive one-year gap of $166.9 million or 10.1% of total assets and 11.13% of earning assets. As the Company’s assets tend to reprice more frequently than its liabilities over a one-year horizon, the Company will generally realize higher net interest income in a rising rate environment and lower net interest income in a falling rate environment. However, this has been mitigated by recent market competitive conditions relating to rising interest rates for certain deposit accounts.

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

The following table sets forth, as of June 30, 2006, the estimated impact of changes on the Company’s net interest income over a twelve-month period and EVE, assuming a parallel shift of 100 to 300 basis points in both directions.

Change (In Basis Points)	Net Interest Income (Next Twelve Months)		% Change		Economic Value of Equity (EVE)		% Change
	(Dollars in thousands)
+300	$	82,760	5.01	%	$	94,289	-25.15	%
+200	$	81,526	3.44	%	$	104,925	-16.71	%
+100	$	80,223	1.79	%	$	115,696	-8.16	%
Level	$	78,812	0.00	%	$	125,977	0.00	%
-100	$	77,217	-2.02	%	$	135,412	7.49	%
-200	$	74,914	-4.95	%	$	142,987	13.50	%
-300	$	72,453	-8.07	%	$	150,754	19.67	%

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As previously indicated, net income increases (decreases) as market interest rates rise (fall), since the Company is asset sensitive. The EVE decreases (increases), as the rate rises (falls), since the EVE has a negative convexity (reverse relationship) with the discount rate. As the above table indicates, a 300 basis points drop in rates impacts net interest income by $6.4 million or a 8.1% decrease, whereas a rate increase of 300 basis points impacts net interest income by $3.9 million or a 5.0% increase.

All interest-earning assets and interest-bearing liabilities and related derivative contracts are included in the rate sensitivity analysis at June 30, 2006. At June 30, 2006, the Company’s estimated changes in net interest income and EVE were within the ranges established by the Board of Directors.

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

CAPITAL RESOURCES

Shareholders’ equity as of June 30, 2006 was $125.5 million, compared to $112.7 million as of December 31, 2005. The primary sources of increases in capital have been retained earnings increases and relatively nominal proceeds from the exercise of employee incentive and/or nonqualified stock options. Shareholders’ equity is also affected by increases and decreases in unrealized losses on securities classified as available-for-sale. The Company is committed to maintaining capital at a level sufficient to assure shareholders, customers, and regulators that the Company is financially sound and able to support its growth from its retained earnings.

The Company is subject to risk-based capital regulations adopted by the federal banking regulators. These guidelines are used to evaluate capital adequacy and are based on an institution’s asset risk profile and off-balance sheet exposures. The risk-based capital guidelines assign risk weightings to assets both on and off-balance sheet and place increased emphasis on common equity. According to the regulations, institutions whose total risk-based capital ratio, Tier I risk-based capital ratio, and Tier I leverage ratio meet or exceed 10%, 6%, and 5%, respectively, are deemed to be “well-capitalized.” As of June 30, 2006 all of the Company’s capital ratios were well above the minimum regulatory requirements for a “well-capitalized” institution.

The following table compares the Company’s and Bank’s actual capital ratios at June 30, 2006, to those required by regulatory agencies for capital adequacy and well-capitalized classification purposes:

Risk Based Ratios

	Center Financial Corporation		Center Bank		Minimum Regulatory Requirements		Well Capitalized Requirements
Total Capital (to Risk-Weighted Assets)	11.07	%	11.11	%	8.00	%	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	9.98	%	10.02	%	4.00	%	6.00	%
Tier 1 Capital (to Average Assets)	8.61	%	8.68	%	4.00	%	5.00	%

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Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of June 30, 2006. This conclusion is based on an evaluation conducted under the supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which are designed to ensure that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

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

Changes in Internal Controls. During the second quarter of 2006, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

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

On or about March 3, 2003, the Bank was served with a complaint filed by Korea Export Insurance Corporation (“KEIC”) in Orange County, California Superior Court, entitled Korea Export Insurance Corporation v. Korea Data Systems (USA), Inc., et al. KEIC is seeking to recover alleged losses from a number of parties involved in international trade transactions that gave rise to bills of exchange financed by various Korean Banks but not ultimately paid. KEIC is seeking to recover damages of approximately $56 million from the Bank based on a claim that, in its capacity as a presenting bank for these bills of exchange, the Bank acted negligently in presenting and otherwise handling trade documents for collection.

On November 10, 2005, the Orange County Superior Court dismissed all claims of KEIC against the Bank in this action on the grounds that federal courts have exclusive jurisdiction over KEIC’s claims against the Bank. KEIC appealed the dismissal; and, in addition, filed a new action against the Bank in federal court asserting the same claims. The Bank has filed a motion to dismiss the federal claims on the grounds of expiration of the applicable statute of limitations and a separate motion for summary judgment regarding each claim. KEIC opposes these motions that are currently pending hearings expected to take in place in September 2006. The oral argument on KEIC’s appeal of the state court judgment in the Bank’s favor is also expected to occur in September 2006. If the outcome of this litigation is adverse to the Bank, and it is required to pay significant monetary damages, the Company’s financial condition and results of operations are likely to be materially and adversely affected. The Bank intends to continue its vigorous defend this lawsuit. Although the Company believes that it has meritorious defenses, management cannot predict the outcome of this litigation.

On June 21, 2006, the Bank entered into a settlement with one of its insurance carriers, BancInsure, wherein BancInsure agreed to pay $3.75 million to settle its past and future obligations for legal fees under its insurance policies concerning the KEIC litigation.

Item 1A: RISK FACTORS

No material changes identified.

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

Item 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

The Company’s annual meeting of shareholders was held on May 10, 2006. A total of 11,537,889 shares were represented in person or by proxy at the meeting, constituting 70% of the 16,450,122 shares of the issued and outstanding shares entitled to vote at the meeting. Proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, there was no solicitation in opposition to the Board of Directors’ nominees for directors as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of shareholders. The directors noted below were elected to two-year terms. The votes tabulated were:

	Authority Given	Authority Withheld
Chung Hyun Lee	10,685,319	852,570
Jin Chul Jhung	10,685,319	852,570
Peter Y. S. Kim	10,685,319	852,570
Seon Hong Kim	7,997,831	3,540,058

In addition, the terms of the following directors continued after the shareholders’ meeting: David Z. Hong, Chang Hwi Kim, and Chang Hwi Kim.

The amendment to the Company’s Bylaws to change the range of authorized directors, as described in the Company’s Definitive Proxy Statement filed on April 20, 2006, was approved at the 2006 annual meeting of shareholders by the following vote:

For	Against	Abstain	Broker Non-Votes
11,521,489	15,500	900	0

The Company’s 2006 Stock Incentive Plan, as described in the Company’s Definitive Proxy Statement filed on April 20, 2006, was approved at the 2006 annual meeting of shareholders by the following vote:

For	Against	Abstain	Broker Non-Votes
7,636,099	3,887,627	14,163	0

Item 5: OTHER INFORMATION

On May 10, 2005, Center Bank entered into a memorandum of understanding (the “MOU”) with the FDIC and the California Department of Financial Institutions (the “DFI”). The MOU is an informal administrative agreement primarily concerning the Bank’s compliance with Bank Secrecy Act (“BSA”) regulations. In accordance with the MOU, the Bank agreed to (i) implement a written action plan, policies and procedures, and comprehensive independent compliance testing to ensure compliance with all BSA-related rules and regulations; (ii) correct any apparent BSA violations previously disclosed by the FDIC; (iii) develop the expertise to ensure that generally accepted accounting principles and regulatory reporting guidelines are observed in all of the Bank’s financial transactions and reporting; and (iv) furnish written quarterly progress reports to the FDIC and the DFI detailing the form and manner of any actions taken to secure compliance with the memorandum and the results thereof.

Management does not believe that the MOU will have a material impact on the Bank’s operating results or financial condition. However, if the DFI and FDIC were to determine that the Bank’s compliance with the MOU was not satisfactory, the MOU would constrain the Bank’s business. Management believes it has taken the measures deemed necessary to correct the identified deficiencies. However, only the FDIC and DFI have the authority to make such a determination.

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Item 6: EXHIBITS

Exhibit No.	Description
3.1	Restated Articles of Incorporation of Center Financial Corporation1
3.2	Amendment to the Articles of Incorporation of Center Financial Corporation2
3.3	Amended and Restated Bylaws of Center Financial Corporation3
10.1	Employment Agreement between California Center Bank and Seon Hong Kim dated March 30, 20044
10.2	2006 Stock Incentive Plan5
10.3	Lease for Corporate Headquarters Office1
10.4	Indenture dated as of December 30, 2003 between Wells Fargo Bank, National Association, as Trustee, and Center Financial Corporation, as Issuer6
10.5	Amended and Restated Declaration of Trust of Center Capital Trust I, dated as of December 30, 20036
10.6	Guarantee Agreement between Center Financial and Wells Fargo Bank, National Association dated as of December 30, 20036
10.7	Deferred compensation plan and list of participants7
10.8	Split dollar plan and list of participants7
10.9	Survivor income plan and list of participants7
11	Statement of Computation of Per Share Earnings (included in Note 8 to Consolidated Financial Statements included herein.)
31.1	Certification of Chief Executive Officer (Section 302 Certification)
31.2	Certification of Chief Financial Officer (Section 302 Certification)
32	Certification of Periodic Financial Report (Section 906 Certification)

¹ Filed as an Exhibit of the same number to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the “Commission”) on June 14, 2002 and incorporated herein by reference

² Filed as an Exhibit of the same number to the Form 10-K for the fiscal year ended December 31, 2005 filed with the Commission on March 16, 2006 and incorporated herein by reference

³ Filed as Exhibit 3.2 to the Form 8-K filed with the Commission on May 12, 2006 and incorporated herein by reference

⁴ Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended March 31, 2004 filed with the Commission on May 13, 2004 and incorporated herein by reference

⁵ Filed as Exhibit 1 to the definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 20, 2006 and incorporated herein by reference

⁶ Filed as an Exhibit of the same number to the Form 10-K for the fiscal year ended December 31, 2003 filed with the Commission on March 30, 2004 and incorporated herein by reference

⁷ Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended March 31, 2006 filed with the Commission on May 5, 2006 and incorporated herein by reference

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SIGNATURES

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

Date: July 26, 2006	/s/    SEON HONG KIM
	Center Financial Corporation Seon Hong Kim President & Chief Executive Officer

Date: July 26, 2006	/s/    PATRICK HARTMAN
	Center Financial Corporation Patrick Hartman Chief Financial Officer & Executive Vice President

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