UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

Commission file number: 000-50050

Center Financial Corporation

(Exact name of Registrant as specified in its charter)

California	52-2380548
(State of Incorporation)	(IRS Employer Identification No.)
3435 Wilshire Boulevard, Suite 700 Los Angeles, California	90010
(Address of principal executive offices)	(Zip Code)

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

Not Applicable

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

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

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

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller Reporting Company	¨

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

As of April 23, 2010 there were 39,895,661 outstanding shares of the issuer’s Common Stock with no par value.

Explanatory Note

Center Financial Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A to amend its Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 that was originally filed with the Securities and Exchange Commission on April 30, 2010 (the “Original Filing”.) As disclosed in our Form 8-K filing dated August 13, 2010, we are filing this Amendment No. 1 to reflect the change in our accounting treatment during the first quarter of 2010 for the conversion of 73,500 Shares of Series B Preferred Stock to Common Stock We have reevaluated our accounting for this transaction and identified that we did not account for the beneficial conversion feature of the Preferred Stock. Based on our review, we have revised, as appropriate, the consolidated financial statements and notes to the consolidated financial statements as of and for the three months ended March 31, 2010. We have also revised the related Management’s Discussion and Analysis of Financial Condition and Results of Operations. These revisions are included in this Amendment No. 1.

The revised calculations relate to the intrinsic value of the beneficial conversion feature of the Series B Preferred Stock. The Company has “no par” common and preferred stock and all additional paid-in capital transactions are recorded in the respective preferred and common stock category. As further discussed in Note 15, Preferred Stock and Common Stock Warrants, the Company issued 73,500 shares of Series B Preferred Stock for a gross purchase price of $73.5 million on December 31, 2009 with an earliest potential redemption date of December 31, 2014 and, upon receiving shareholder approval, effected a beneficial mandatory conversion into common stock at a conversion price of $3.75. The market value of the Company’s common stock on December 29, 2009, the commitment date for the preferred stock issuance, was $5.23 per share. The beneficial conversion feature of the preferred stock had an intrinsic value on December 29, 2009 of $29,007,972, based on the difference between the conversion price of $3.75 per share and the market value of the Company’s common stock at the commitment date. Shareholder approval of the conversion of the Series B Preferred Stock was received on March 24, 2010 and the Series B Preferred Stock was recognized as accretion of preferred stock discount on March 29, 2010.

The calculation of net income available for common shareholders and basic earnings per share has been restated below for the quarter ended March 31, 2010 to properly reflect the accretion of beneficial conversion discount on the preferred stock.

	Three Months Ended March 31, 2010
	(Dollars in thousands, except earnings per share)
				Accretion of beneficial conversion discount on
	March 31, 2010					March 31, 2010
	As reported			Preferred Stock		Restated
Basic earnings (loss) per share
Net income (loss)	$	2,767				$	2,767
Less : preferred stock dividends and accretion of preferred stock discount		(744	)	(29,008	)		(29,752	)
Income (loss) available to common shareholders		2,023		(29,008	)		(26,985	)
Average Number of Shares		21,286					21,286
Basic earnings (loss) per share	$	0.10				$	(1.27	)

The Company adjusted the balances of its common stock and retained earnings accounts as of March 31, 2010 to reflect the discount accretion of $29,007,973.

	Common Stock		Retained Earnings
Balance as of March 31, 2010, as previously reported	$	158,295,000	$	43,337,000
Accretion of beneficial conversion discount on Series B Preferred Stock	$	29,007,972	$	(29,007,972	)
Balance as of March 31, 2010, as adjusted	$	187,302,972	$	14,329,028

2

This Amendment No. 1 on Form 10-Q/A amends:

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 4. Controls and Procedures

This Amendment No. 1 includes the Original Filing in its entirety and we are only amending those portions affected by the revisions described above. The only exhibits included with this Amendment No. 1 are Exhibits 31.1, 31.2, and 32, related to the certifications by the principal executive officer and the principal financial officer, as required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended.

We also reassessed the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation and due to the restatement of the unaudited consolidated financial statements as of and for the three months ended March 31, 2010, we concluded that our disclosure controls and procedures were not effective as of March 31, 2010. However, management believes that the consolidated financial statements included in this Amendment No. 1 to Form 10-Q/A were prepared in accordance with U.S. generally accepted accounting principles in all material respects.

3

FORM 10-Q

Index

PART I—FINANCIAL INFORMATION		5
ITEM 1:	INTERIM CONSOLIDATED FINANCIAL STATEMENTS	5
	NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
	FORWARD-LOOKING STATEMENTS	23
	EXECUTIVE OVERVIEW	27
	EARNINGS PERFORMANCE ANALYSIS	28
	FINANCIAL CONDITION ANALYSIS	33
	LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT	46
	CAPITAL RESOURCES	48
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49
ITEM 4:	CONTROLS AND PROCEDURES	49
PART II—OTHER INFORMATION		51
ITEM 1:	LEGAL PROCEEDINGS	51
ITEM 1A.	RISK FACTORS	51
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4:	(REMOVED AND RESERVED)	51
ITEM 5:	OTHER INFORMATION	51
ITEM 6:	EXHIBITS	52
SIGNATURES		54

4

PART I—FINANCIAL INFORMATION

Item 1: INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

AS OF MARCH 31 AND DECEMBER 31

	2010		2009
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	34,345	$	34,294
Federal funds sold		135,160		145,810
Interest-bearing deposits in other banks		52,718		52,698
Cash and cash equivalents		222,223		232,802
Securities available for sale, at fair value		288,999		370,427
Federal Home Loan Bank and Pacific Coast Bankers Bank stock, at cost		15,673		15,673
Loans, net of allowance for loan losses of $61,011 as of March 31, 2010 and $58,543 as of December 31, 2009		1,440,488		1,455,824
Loans held for sale, at the lower of cost or fair value		19,851		23,318
Premises and equipment, net		12,926		13,368
Customers’ liability on acceptances		2,201		2,341
Other real estate owned, net		2,993		4,278
Accrued interest receivable		6,623		6,879
Deferred income taxes, net		13,588		11,551
Investments in affordable housing partnerships		11,291		11,522
Cash surrender value of life insurance		12,491		12,392
Income tax receivable		15,263		16,140
Prepaid regulatory assessment fees		10,569		11,483
Other assets		6,439		4,802
Total	$	2,081,618	$	2,192,800
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	360,520	$	352,395
Interest-bearing		1,264,792		1,395,276
Total deposits		1,625,312		1,747,671
Acceptances outstanding		2,201		2,341
Accrued interest payable		4,097		5,803
Other borrowed funds		163,260		148,443
Long-term subordinated debentures		18,557		18,557
Accrued expenses and other liabilities		11,067		13,927
Total liabilities		1,824,494		1,936,742
Commitments and Contingencies		—		—
Shareholders’ Equity
Preferred stock, no par value; 10,000,000 shares authorized; issued and outstanding, 55,000 shares and 128,500 shares as of March 31, 2010 and December 31, 2009, respectively
Series A, cumulative, issued and outstanding, 55,000 shares as of March 31, 2010 and December 31, 2009		53,227		53,171
Series B, non-cumulative, convertible, issued and outstanding, none and 73,500 shares as of March 31, 2010 and December 31, 2009, respectively		—		70,000
Common stock, no par value; 100,000,000 and 40,000,000 shares authorized; issued and outstanding, 39,895,661 and 20,160,726 shares (including 60,809 shares and 10,050 of unvested restricted stock) as of March 31, 2010 and December 31, 2009, respectively		187,303		88,060
Retained earnings		14,329		41,314
Accumulated other comprehensive income, net of tax		2,265		3,513
Total shareholders’ equity		257,124		256,058
Total	$	2,081,618	$	2,192,800

See accompanying notes to interim consolidated financial statements.

5

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31

	2010			2009
	(Dollars in thousands, except per share data)
Interest and dividend Income:
Interest and fees on loans	$	20,628		$	24,311
Interest on federal funds sold		60			35
Interest on taxable investment securities		2,937			2,254
Interest on tax-advantaged investment securities		—			7
Money market funds and interest-earning deposits		7			30
Total interest and dividend income		23,632			26,637
Interest Expense:
Interest on deposits		5,461			8,725
Interest expense on long-term subordinated debentures		140			192
Interest on other borrowed funds		1,603			1,818
Total interest expense		7,204			10,735
Net interest income before provision for loan losses		16,428			15,902
Provision for loan losses		7,000			14,451
Net interest income after provision for loan losses		9,428			1,451
Noninterest Income:
Customer service fees		2,031			1,973
Fee income from trade finance transactions		658			548
Wire transfer fees		281			267
Net gain (loss) on sale of securities available for sale		2,209			(49	)
Loan service fees		160			275
Other income		350			724
Total noninterest income		5,689			3,738
Noninterest Expense:
Salaries and employee benefits		4,340			4,289
Occupancy		1,195			1,182
Furniture, fixtures, and equipment		507			528
Data processing		464			595
Legal fees		306			243
Accounting and other professional fees		315			410
Business promotion and advertising		257			338
Supplies and communications		264			424
Security service		235			245
Regulatory assessment		986			592
OREO expenses		959			6
Other operating expenses		1,035			1,296
Total noninterest expense		10,863			10,148
Income (loss) before income tax provision (benefit)		4,254			(4,959	)
Income tax provision (benefit)		1,487			(2,233	)
Net income (loss)		2,767			(2,726	)
Preferred stock dividends and accretion of preferred stock discount		(29,752	)		(730	)
Net income (loss) available to common shareholders		(26,985	)		(3,456	)
Other comprehensive (loss) income—unrealized gain on available-for-sale securities, net of income tax benefit (expense) of $672 and $(201) for the period ending March 31, 2010 and 2009, respectively		(1,248	)		278
Comprehensive income (loss)	$	1,519		$	(2,448	)
Earnings (loss) per common share:
Basic	$	(1.27	)	$	(0.21	)
Diluted		(1.27	)		(0.21	)
Average common shares outstanding (in thousands):
Basic		21,286			16,789
Diluted		21,286			16,789

See accompanying notes to interim consolidated financial statements.

6

CENTER FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31

	2010			2009
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,767		$	(2,726	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock option compensation		235			239
Depreciation and amortization		768			1,033
Amortization of deferred fees		(71	)		(143	)
Amortization of premium, net of accretion of discount, on securities available for sale and held to maturity		970			841
Provision for loan losses		7,000			14,451
Net (gain) loss on sale of securities available for sale		(2,209	)		49
Net decrease (increase) in loans held for sale		3,467			(1,206	)
Deferred tax provision		(1,365	)		(3,958	)
Decrease in accrued interest receivable		256			409
Net increase in cash surrender value of life insurance policy		(99	)		(99	)
Decrease in income tax receivable		877			—
Decrease in prepaid assessment		914			—
Increase in other assets and servicing assets		(627	)		(879	)
Decrease in accrued interest payable		(1,706	)		(207	)
(Decrease) increase in accrued expenses and other liabilities		(3,001	)		340
Net cash provided by operating activities		8,176			8,144
Cash flows from investing activities:
Purchase of securities available for sale		(17,948	)		(34,087	)
Proceeds from principal repayment, matured, or called securities available for sale		39,657			8,572
Proceeds from sale of securities available for sale		59,038			10,005
Net decrease in loans		8,227			53,718
Proceeds from recoveries of loans previously charged-off		180			126
Purchases of premises and equipment		(84	)		(370	)
Proceeds from sale of other real estate owned		405			—
Net increase in investments in affordable housing partnerships		—			129
Net cash provided by investing activities		89,475			38,093
Cash flows from financing activities:
Net (decrease) increase in deposits		(122,358	)		60,549
Net increase (decrease) in other borrowed funds		14,817			(24,804	)
Payment of cash dividends		(688	)		(1,320	)
Net cash (used in) provided by financing activities		(108,229	)		34,425
Net (decrease) increase in cash and cash equivalents		(10,578	)		80,662
Cash and cash equivalents, beginning of the period		232,801			98,211
Cash and cash equivalents, end of the period	$	222,223		$	178,873
Supplemental disclosure of cash flow information:
Interest paid	$	8,910		$	10,942
Income taxes paid	$	6		$	2,300
Supplemental schedule of noncash investing, operating, and financing activities:
Cash dividend accrual for preferred stock	$	344		$	344
Accretion of preferred stock discount	$	29,752		$	51
Conversion of preferred stock to common stock	$	70,000		$	—

See accompanying notes to interim consolidated financial statements.

7

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 the other subsidiary and providing access to capital and funding for the Bank. Center Financial, the Bank, and Center Capital Trust I are collectively referred to herein as the “Company.”

The Bank is a California state-chartered and FDIC-insured financial institution, which was incorporated in 1985 and commenced operations in March 1986. The Bank’s headquarters are located at 3435 Wilshire Boulevard, Suite 700, Los Angeles, California 90010. The Bank provides comprehensive financial services for small to medium sized business owners, primarily in Southern California. The Bank specializes in commercial loans, 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 Southern California including Los Angeles, Orange, San Bernardino, and San Diego counties, primarily focused in areas with high concentrations of Korean-Americans. The Bank currently has 19 full-service branch offices, 16 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 Bank 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 Bank assumed $12.9 million in FDIC insured deposits and purchased $8.0 million in loans from the KEB Chicago branch. The Bank opened two new branches in Federal Way, Washington and Diamond Bar, California in November 2007 and March 2008, respectively. At March 31, 2010, the Bank operates one Loan Production Office (“LPO”) in Seattle. Effective February 17, 2009, the Company closed five LPOs located in Denver, Washington D.C., Atlanta, Dallas, and Northern California.

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 has historically been dividends from the Bank, though payment of such dividends currently requires prior regulatory approval from the Federal Deposit Insurance Corporation (the “FDIC”) and the Department of Financial Institutions (the “DFI”). Center Financial also intends to explore supplemental sources of income in the future. Expenditures, including but not limited to the payment of dividends to shareholders, if and when declared by the board of directors, and the cost of servicing debt, will generally be paid from such payments made to Center Financial by the Bank. The Company’s liabilities include $18.6 million in debt obligations due to Center Capital Trust I, related to capital trust pass-through securities issued by that entity.

2. BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of Center Financial and the Bank. Center Capital Trust I is not consolidated as disclosed in Note 10.

The interim consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for unaudited financial statements. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for the fair statement of results for the periods presented. All adjustments are of a normal and recurring nature. Results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes included in Company’s annual report on Form 10-K, as amended, for the year ended December 31, 2009.

Reclassifications

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

3. SIGNIFICANT ACCOUNTING POLICIES

Accounting policies are fully described in Note 2 to the consolidated financial statements in Center Financial’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2009 and there have been no material changes noted.

8

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement establishing the FASB Accounting Standards Codification (the “ASC” or “Codification”) as the exclusive authoritative reference for nongovernmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification superseded all non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is now nonauthoritative. The Company adopted this new accounting pronouncement beginning with the quarterly period ended September 30, 2009.

In June 2009, the FASB issued FASB Accounting Standards Update (“ASU”) 2009-16, Accounting for Transfers of Financial Assets (Statement 166 ), which amends ASC Topic 860 (FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). These eliminate the Qualified Special Purpose Entity (“QSPE”) concept, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the derecognition criteria, revises how retained interests are initially measured, and removes the guaranteed mortgage securitization recharacterization provisions. This ASU requires additional disclosures for non-public companies that are similar to the disclosures previously required for public companies by FASB Staff Position FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” This ASU is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009 (January 1, 2010 for calendar year-end companies), and for subsequent interim and annual reporting periods. The disclosure requirements must be applied to transfers that occurred before and after its effective date. Early adoption is prohibited. The Company determined, based on its assessment, that the impact of adopting these pronouncements is not material on the consolidated financial statements.

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

In February 2010, the FASB issued FASB ASU 2010-09, Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic 855, Subsequent Events (originally issued as FASB Statement No. 165, Subsequent Events), so that SEC filers, as defined in the ASU, no longer are required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. Entities that are not SEC filers must continue to disclose the date through which subsequent events have been evaluated, including situations in which the financial statements are revised for a correction of an error or retrospective application of U.S. GAAP. Additionally, SEC filers and conduit bond obligors for conduit debt securities that are traded in a public market must evaluate subsequent events through the date the financial statements are issued. All other entities are required to evaluate subsequent events through the date the financial statements are available to be issued. The ASU is effective immediately, except for the use of the issued date for evaluating subsequent events by conduit debt obligors. Conduit debt obligors will be required to evaluate subsequent events through the date the financial statements are issued in fiscal years ending after June 15, 2010. The Company adopted this pronouncement as disclosed in Note 16.

5. STOCK-BASED COMPENSATION

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

9

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

employees (including officers) and non-employee directors. The 2006 Plan replaced the Company’s former stock option plan (the “1996 Plan”) which expired in February 2006, and all options under the 1996 Plan which were outstanding on April 12, 2006 were transferred to and made part of the 2006 Plan. The option prices of all options granted under the 2006 Plan (including options transferred from the 1996 Plan) must be not less than 100% of the fair market value at the date of grant. All options granted generally vest at the rate of 20% per year except that the options granted to the CEO and to the non-employee directors vest at the rate of 33 1/3% per year. All options not exercised generally expire ten years after the date of grant. Vesting of restricted stock awards (“RSAs”) is discretionary with the Board of Directors or the Compensation Committee, but awards granted to date generally vest at the rate of 50% on the third anniversary of the grant date and 25% per year for the next two years. However, the RSA granted to the CEO and the Chief Credit Officer vests 50% on the second anniversary of the grant date and the remaining 50% the following year. RSAs granted to senior executive officers are also subject to restrictions on transfer even after vesting for as long as the Company has preferred stock outstanding to the U.S. Treasury Department pursuant to the TARP Capital Purchase Program.

The Company’s pre-tax stock-based compensation expense for employees and directors was $235,000 and $239,000 ($175,000 and $182,000 after tax effect of non-qualified stock options) for the three months ended March 31, 2010 and 2009, respectively. There was no option granted for the three months ended March 31, 2010. The Company granted options covering 25,000 shares with a weighted average grant-date fair value of $2.05 for the three months ended March 31, 2009.

Stock Option Awards

The fair value of the stock options granted was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions 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, the expected life (estimated period of time outstanding) of options granted with a 10-year term was determined using the average of the vesting period and term. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life, ending on the day of grant, and calculated on a weekly basis.

	Three Months Ended 3/31/2010	Three Months Ended 3/31/2009
Risk-free interest rate	1.71% - 3.60%	1.71% - 6.11%
Expected life	3 - 6.5 years	3 - 6.5 years
Expected volatility	70% - 113%	28% - 42%
Expected dividend yield	0.00% - 3.50%	0.00% - 2.21%

These assumptions were utilized in the calculation of the compensation expense noted above. These expenses are the result of previously granted stock options and those awarded during the three months ended March 31, 2010 and 2009, respectively.

A summary of the Company’s stock option activity and related information for the three months ended March 31, 2010 and 2009 is set forth in the following table:

			Outstanding Options
	Shares Available For Grant		Number of Shares		Weighted Average Exercise  Price
Balance at December 31, 2009	2,266,612		760,245		$	16.93
Options granted	—		—			—
Options forfeited	3,000		(3,000	)		17.00
Options exercised	—		—			—
Balance at March 31, 2010	2,269,612		757,245			16.93
Balance at December 31, 2008	2,190,252		850,151		$	16.78
Options granted	(25,000	)	25,000			4.79
Options forfeited	4,500		(4,500	)		17.00
Options exercised	—		—			—
Balance at March 31, 2009	2,169,752		870,651			16.43

10

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The stock options as of March 31, 2010 have been segregated into three ranges for additional disclosure as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price		Options Exercisable	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price
$8.00—$2.23	52,745	5.88	$	5.02	31,078	3.71	$	5.26
$8.01—$20.00	518,500	6.66		16.12	305,801	6.27		15.77
$20.01—$25.10	186,000	6.58		22.56	157,900	6.61		22.52
As of March 31, 2010	757,245	6.59		16.93	494,779	6.22		17.26
$2.23—$8.00	90,451	4.62	$	4.93	65,451	2.63	$	4.98
$8.01—$20.00	576,200	7.62		16.03	216,401	6.68		15.07
$20.01—$25.10	204,000	7.49		22.69	117,167	7.50		22.67
As of March 31, 2009	870,651	7.28		16.43	399,019	6.25		15.65

The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2010 and 2009 was $0. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $4.85 and $2.82 as of March 31, 2010 and 2009, respectively, and the exercise price multiplied by the number of options outstanding. No options were exercised or vested during the three months ended March 31, 2010 and 2009. Total fair value of shares vested was $416,000 and $0 as of March 31, 2010 and 2009, respectively.

As of March 31, 2010 and 2009, the Company had approximately $792,000 and $1.6 million of unrecognized compensation costs related to unvested options, respectively, which are expected to be recognized over a weighted average period of 2.12 years and 2.55 years, respectively.

Restricted Stock Awards

Restricted stock activity under the 2006 Plan as of and changes during the three months ended March 31, 2010 and 2009 are as follows:

	Three Months Ended March  31, 2010				Three Months Ended March 31, 2009
Restricted Stock:	Number of Shares		Weighted-Average Grant-Date Fair Value per Share		Number of Shares	Weighted-Average Grant-Date Fair Value per Share
at beginning of period	10,050		$	13.59	10,400	$	14.72
Granted	50,909			5.07	—		—
Vested	—			—	—		—
Cancelled and forfeited	(150	)		8.65	—		—
at end of period	60,809			6.47	10,400		14.72

The Company recorded compensation cost of $16,000 and $5,000 related to the restricted stock granted under the 2006 Plan for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010 and 2009, the Company had approximately $204,000 and $61,000 of unrecognized compensation costs related to unvested restricted stock, respectively. The costs are expected to be recognized over a weighted-average period of 2.28 years and 2.16 years as of March 31, 2010 and 2009, respectively. No shares vested during the three months ended March 31, 2010 and 2009.

6. FAIR VALUE MEASUREMENTS

Fair Values of Financial Instruments

The Company, using available market information and appropriate valuation methodologies available to management at March 31, 2010 and December 31, 2009, has determined the estimated fair value of financial instruments. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Furthermore, fair values do not reflect any premium or discount that may result from offering the instruments for sale. Potential taxes and other expenses that would be incurred in an actual sale or settlement are not reflected.

11

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:

	March 31, 2010				December 31, 2009
	Carrying or Contract Amount		Estimated Fair Value		Carrying or Contract Amount		Estimated Fair Value
	(Dollars in thousands)
Assets
Cash and cash equivalents	$	222,223	$	222,223	$	232,802	$	232,802
Investment securities available for sale		288,999		288,999		370,427		370,427
Loans receivable, net		1,460,339		1,451,058		1,479,142		1,472,963
Federal Home Loan Bank and other equity stock		15,673		15,673		15,673		15,673
Customers’ liability on acceptances		2,201		2,201		2,341		2,341
Accrued interest receivable		6,623		6,879		6,879		6,879
Income tax receivable		15,249		15,249		16,140		16,140
Liabilities
Deposits		1,625,312		1,587,268		1,747,671		1,704,176
Other borrowed funds		163,260		172,964		148,443		157,593
Acceptances outstanding		2,201		2,201		2,341		2,341
Accrued interest payable		4,097		4,097		5,803		5,803
Long-term subordinated debentures		18,557		14,052		18,557		13,790
Accrued expenses and other liabilities		11,053		11,053		13,927		13,927
Off-balance sheet items
Commitments to extend credit	$	160,980	$	206	$	187,148	$	240
Standby letter of credit		21,753		326		21,284		319
Commercial letters of credit		30,021		113		22,190		84
Performance bonds		487		7		651		9

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

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

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

Loans—Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The fair values of fixed rate loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing of similar fixed rate loans, as well as anticipated repayment schedules. The fair value of adjustable rate loans is based on the estimated discounted cash flows utilizing the discount rates that approximate the pricing of loans collateralized by similar properties or assets. The fair value of nonperforming loans at March 31, 2010 and December 31, 2009 was not estimated because it is not practicable to reasonably assess the credit adjustment that would be applied in the marketplace for such loans. The estimated fair value is net of allowance for loan losses, deferred loan fees, and deferred gain on SBA loans.

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

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

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

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

12

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Fair Value Measurement – Three Levels

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

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

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

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

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

Assets

Securities

U.S. Government Agencies – The Company measures fair value of U.S. Government agency securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement.

Municipal securities – The Company measures fair value of state and municipal securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement.

Residential mortgage-backed securities – The Company measures fair value of residential mortgage-backed securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement.

Collateralized mortgage obligations – The Company measures fair value of collateralized mortgage obligations by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement.

The Company owns one collateralized debt obligation (“CDO”) security that is backed by trust preferred securities (“TRUPS”) issued by banks and thrifts. The Company recognized an OTTI impairment during 2008 of $9.9 million to reduce the CDO TRUPS to fair value of $1.1 million. The CDO TRUPS securities market for the past several quarters has been severely impacted by the liquidity crunch and concern over the banking industry. If the weight of the evidence indicates the market is not orderly, a reporting entity shall place little, if any, weight compared with other indications of fair value on that transaction price when estimating fair value or market risk premiums. Factors that were considered to determine whether there has been a significant decrease in the volume and level of activity for the CDO TRUPS securities market when compared with normal activity include:

• There are few recent transactions.

• Price quotations are not based on current information.

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

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

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

13

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

• Little information is publicly available.

The fair values of securities available for sale are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or prices obtained from independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values.

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

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

The Company continues to utilize Moody’s Analytics to compute the fair value of the CDO TRUPS security. Moody’s continues to update their valuation process. During the third quarter, Moody’s made changes to refine and improve the estimate of default probabilities to align the valuation methodology with industry practices.

In order to determine the appropriate discount rate used in calculating fair values derived from the income method for the CDO TRUPS security, certain assumptions were made using an exit pricing approach related to the implied rate of return which have been adjusted for general change in market rates, estimated changes in credit quality and liquidity risk premium, specific nonperformance and default experience in the collateral underlying the securities.

The Moody’s Analytics Discounted Cash flow Valuation analysis uses the 3-month London Inter-Bank Offered Rate (“LIBOR”) + 300 basis points as a discount rate (to reflect illiquidity – the credit component of the discount rate is embedded in the credit analysis). Approximating the yield premium for the illiquidity of a CDO TRUPS security has proved to be difficult and management found it more useful to measure the price impact for this illiquidity discount. The table below illustrates this.

	Modified Duration	Price impact in percentage for basis point shown
Maturity		100 bp		200 bp		300 bp		400 bp
10 yr	8.58	9	%	17	%	26	%	34	%
20 yr	14.95	15	%	30	%	45	%	60	%
30 yr	19.69	20	%	39	%	59	%	79	%

There are three maturity assumptions, since the final maturity on the CDO TRUPS securities can be no longer than thirty years but may be less than that as well. From the percentage impact in the 300 basis points column, an illiquidity discount of 300 basis points seems to be sufficient and reasonable based on management’s opinion in consideration of current market conditions. The maturity date on the Company’s CDO TRUPS security is October 3, 2032 and that would put the price impact for illiquidity at a 45% to 59% discount as of March 31, 2010.

The spread over LIBOR does not include a credit spread as the probable credit outlook is included in the underlying cash flows. The spread over LIBOR only reflects a liquidity discount. The discount rate that reflects expectations about future defaults is appropriate if using contractual cash flows of a loan. That same rate is not used if using expected (probability-weighted) cash flows because the expected cash flows already reflect assumptions about future defaults; instead, a discount rate that is commensurate with the risk inherent in the expected cash flows is used.

14

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Loans held for sale

Loans held for sale are measured at the lower of cost or fair value. As of March 31, 2010, the Company has $19.9 million of loans held for sale. Management obtains quotes, bids or pricing indication sheets on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At March 31, 2010, all loans held for sale were recorded at its cost. The Company measures loans held for sale on a nonrecurring basis with Level 2 inputs.

Impaired loans

A loan is considered impaired when it is probable that all of the principal and interest due may not be collected according to the original underwriting terms of the loan. Impaired loans are measured at the lower of its carrying value or at an observable market price if available or at the fair value of the loan’s collateral if the loan is collateral dependent. Fair value of the loan’s collateral when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost associated with liquidating the collateral. The Company measures impaired loans on a nonrecurring basis with Level 2 inputs.

Other Real Estate Owned (“OREO”)

OREO is recorded at the lower of its carrying value or its fair value less anticipated disposal cost. Fair value of the OREO is determined by appraisals or independent valuation, which is then adjusted for the cost associated with liquidating the property. The Company measures OREO on a nonrecurring basis with Level 2 inputs.

Assets measured at fair value at March 31, 2010 are as follows:

	Fair Value Measurements at Reporting Date Using
	(Dollars in thousands)
	Total		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value on a recurring basis
Available-for-sale securities:
U.S. Treasury	$	300	$	300	$	—	$	—
U.S. Governmental agencies and U.S. Government sponsored enterprise securities		69,188		—		69,188		—
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		161,748		—		161,748		—
Corporate trust preferred securities		2,212		—		—		2,212
Mutual Funds backed by adjustable rate mortgages		4,572		—		4,572		—
Fixed rate collateralized mortgage obligations		50,979		—		50,979		—
Total available-for-sale securities	$	288,999	$	300	$	286,487	$	2,212
Assets measured at fair value on a non-recurring basis
Impaired Loans	$	89,725		—		89,725		—
OREO	$	2,993		—		2,993		—

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

	Unobservable Inputs (Level 3)
	(Dollars in thousands)
	Beginning Balance as of 12/31/09		Purchases, Issuance  and Settlements		Realized Gains or Losses  in Earnings (Expenses)		Unrealized Gains or Losses in  Other Comprehensive Income			Ending Balance as  of 3/31/10
ASSETS
Available-for-sale securities:
Corporate trust preferred security (CDO TRUPS)	$	2,404	$	—	$	—	$	(192	)	$	2,212

Liabilities

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

15

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. LOAN IMPAIRMENT AND ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement, including contractual interest and principal payments. Impaired loans are measured for impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, alternatively, at the loan’s observable market price or the fair value of the collateral if the loan is collateralized, less costs to sell. Loans are identified for specific allowances from information provided by several sources including asset classification, third party reviews, delinquency reports, periodic updates to financial statements, public records, and industry reports. All loan types are subject to impairment evaluation for a specific allowance once identified as impaired.

The following table provides information on impaired loans:

	As of and for the three months ended March 31, 2010			As of and for the twelve months ended December 31, 2009
	(Dollars in thousands)
Impaired loans with specific reserves	$	31,128		$	22,045
Impaired loans without specific reserves		62,905			55,058
Total impaired loans		94,033			77,103
Allowance on impaired loans		(4,308	)		(2,656	)
Net recorded investment in impaired loans	$	89,725		$	74,447
Average total recorded investment in impaired loans	$	94,650		$	91,244
Interest income recognized on impaired loans	$	325		$	603
Interest income recognized on impaired loans on a cash basis	$	221		$	590

During the first quarter of 2010, a further decline in the overall economy was a major contributor to the increase in impaired loans, along with a weakening of the commercial real estate market in Southern California. As of March 31, 2010, specific reserves of $4.3 million represented 13.8% of the impaired loans with specific reserves as compared to 12.0% as of December 31, 2009.

The following table sets forth the composition of the allowance for loan losses as of March 31, 2010 and December 31, 2009:

	March 31, 2010		December 31, 2009
	(Dollars in thousands)
Specific (Impaired loans)	$	4,309	$	2,656
Formula (non-homogeneous)		56,377		55,539
Homogeneous		325		348
Total allowance for loan losses	$	61,011	$	58,543

The Company’s allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that estimates the losses inherent in the loan portfolio. Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, changes in nonperforming loans, and other factors. Quantitative factors also incorporate known information about individual loans, including borrowers’ sensitivity to interest rate movements and to quantifiable external factors including commodity and finished good prices as well as natural disasters (earthquakes, floods, fires, etc.) that occur in a particular period. Qualitative factors include the general economic environment in the Company’s markets and, in addition, risks and concerns related to particular 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 methodology.

The allowance attributable to qualitative factors as of March 31, 2010 and December 31, 2009 amounted to $18.5 million and $20.5 million, respectively, while the remaining balances of $37.9 million and $35.0 million were attributable to quantitative factors, respectively.

16

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

	Three Months Ended March 31,			Year Ended December 31,			Three Months Ended March 31,
	2010			2009			2009
	(Dollars in thousands)
Balances
Average total loans outstanding during the period 14)	$	1,534,369		$	1,637,703		$	1,678,518
Total loans outstanding at end of period 14)	$	1,521,350		$	1,537,685		$	1,662,172
Allowance for Loan Losses:
Balance at beginning of period	$	58,543		$	38,172		$	38,172
Charge-offs:		4,712			57,832			2,971
Recoveries		180			731			126
Net loan charge-offs		4,532			57,101			2,845
Provision for loan losses		7,000			77,472			14,451
Balance at end of period	$	61,011		$	58,543		$	49,778
Ratios:
Net loan charge-offs to average loans		1.20	%		3.49	%		0.69	%
Provision for loan losses to average total loans		1.85			4.73			3.49
Allowance for loan losses to gross loans at end of period		4.01			3.81			2.99
Allowance for loan losses to total nonperforming loans		87			92			88
Net loan charge-offs to allowance for loan losses at end of period		30.13			97.54			23.18
Net loan charge-offs to provision for loan losses		64.74			73.71			19.69

8. OTHER REAL ESTATE OWNED (OREO)

From time to time, the Company acquires ownership of the collateral properties securing the nonaccrual loans through the foreclosure process. The Company records OREO at the lower of its carrying value or its fair value less anticipated disposal costs. The Company had four OREO properties comprised of three commercial properties totaling $1.7 million and one residential property of $1.3 million as of March 31, 2010. The Company disposed of one commercial property for $0.4 million during the three months ended March 31, 2010.

	(Dollars in thousands)
	Beginning Balance  as of 12/31/09		Acquisition		Disposition			Valuation Adjustment			Transfer to Other Receivable			Ending Balance as  of 3/31/10
OREO	$	4,278	$	—	$	(405	)	$	(779	)	$	(101	)	$	2,993

9. OTHER BORROWED FUNDS

The Company borrows funds from the Federal Home Loan Bank of San Francisco (“FHLB”) and the Treasury, Tax, and Loan Investment Program. Other borrowed funds totaled $163.3 million and $148.4 million at March 31, 2010 and December 31, 2009, respectively. Interest expense on other borrowed funds was $1.6 million and $1.8 million for the three months ended March 31, 2010 and 2009, respectively, reflecting average interest rates of 4.39% and 4.17%, respectively. The increase in the borrowing rate was a result of the decrease in utilization of overnight borrowings of which rates approximate the Fed Funds rates. The remaining borrowings were term borrowings which have higher rates.

As of March 31, 2010, the Company borrowed $146.7 million from the FHLB with maturity from less than 1 year to 15 years. Advances of 10-year and 15-year terms are amortizing at predetermined schedules over the life of the advances. Of the $146.7 million outstanding, $145.0 million is composed of six fixed rate term advances, each with an option to be called by the FHLB after the lockout dates varying from 6 months to 2 years. If market interest rates are higher than the advances’ stated rates at that time, the advances will be called by the FHLB and the Bank will be required to repay the FHLB. If market interest rates are lower after the lockout period, then the advances will not be called by the FHLB. If the advances are not called by the FHLB, they will mature on the maturity date ranging from 4 years to 10 years. The Company may repay the advances with a prepayment penalty at any time. If the advances are called by the FHLB, there is no prepayment penalty.

17

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has pledged, under a blanket lien, all qualifying commercial and residential loans as collateral under the borrowing agreement with the FHLB, with a total carrying value of $733.2 million at March 31, 2010 as compared to $812.9 million at December 31, 2009.

Subject to the right of the FHLB to require early repayment of the borrowings discussed above, FHLB advances outstanding, with an average interest rate of 4.36%, as of March 31, 2010, mature as follows:

	(Dollars in thousands)
2010	$	273
2011		25,381
2012		100,295
2013		157
2014		167
Thereafter		20,477
	$	146,750

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 $2.0 million at March 31, 2010, as collateral to participate in the program. The total borrowed amount under the program, outstanding at March 31, 2010 and December 31, 2009 was $1.1 million and $1.5 million, respectively.

In addition, the Company consummated SBA loan sale during the first quarter of 2010 in the amount of $15.3 million, which is included in borrowed funds and gain recognition is deferred until the 90-day premium refund period expires.

10. LONG-TERM SUBORDINATED DEBENTURES

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

Holders of the TP Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security at a current rate per annum of 3.10%. Interest rate defined as per annum rate of interest, resets quarterly, equal to LIBOR immediately preceding each interest payment date (January 7, April 7, July 7, and October 7 of each year) plus 2.85%.

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

On March 1, 2005, the FRB adopted a final rule that allows the continued inclusion of trust-preferred securities in the Tier I capital of bank holding companies. However, under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier I capital elements, net of goodwill. As of March 31, 2010, trust preferred securities comprised 6.60% of the Company’s Tier I capital.

18

CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

11. EARNINGS (LOSS) PER SHARE

Common stock outstanding at March 31, 2010 totaled 39,895,661 shares. Basic earnings (loss) per share are calculated on the basis of weighted average number of shares outstanding during the period. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Diluted earnings (loss) per share do not include all potentially dilutive shares that may result from the future exercise or vesting of outstanding stock options and restricted stock awards. Exercise of options is not assumed if the result would be anti-dilutive such as when a loss from continuing operations is reported.

The following table sets forth the Company’s earnings (loss) per share calculation for the three months ended March 31, 2010 and 2009:

	Three Months Ended March 31,
	2010							2009
	(Dollars in thousands, except earnings per share)
	Net Income			Average Number of Shares	Per Share Amounts			Net Loss			Average Number of Shares	Per Share Amounts
Basic earnings (loss) per share
Net income (loss)	$	2,767		21,286	$	0.13		$	(2,726	)	16,789	$	(0.16	)
Less : preferred stock dividends and accretion of preferred stock discount		(29,752	)	—		(1.40	)		(730	)	—		(0.05	)
Income (loss) available to common shareholders		(26,985	)	21,286		(1.27	)		(3,456	)	16,789		(0.21	)
Effect of dilutive securities:
Stock options and restricted stock awards		—		—		—			—		—		—
Diluted earnings (loss) per share
Income (loss) available to common shareholders	$	(26,985	)	21,286	$	(1.27	)	$	(3,456	)	16,789	$	(0.21	)

The number of common shares underlying stock options which were outstanding but not included in the calculation of diluted earnings (loss) per share because they would have had an anti-dilutive effect amounted to approximately 750,000 and 851,000 shares for the three months ended March 31, 2010 and 2009, respectively.

12. COMMON AND PREFERRED STOCK CASH DIVIDENDS

On March 25, 2009, the Company’s board of directors suspended its quarterly cash dividends based on adverse economic conditions and the Company’s recent losses. The board of directors determined that this is a prudent, safe and sound practice to preserve capital, and does not expect to resume the payment of cash dividends in the foreseeable future. Unless the preferred stock issued to the Treasury Department in the TARP Capital Purchase Program has been redeemed, the Company will not be permitted to resume paying cash dividends without the consent of the Treasury Department until December 2011. In addition, the Bank and the Company have each entered into MOUs with the respective regulatory agency or agencies, pursuant to which both the Bank and the Company must obtain prior regulatory approval to pay dividends. See “Recent Developments” in Item 2 below.

The Company paid a preferred stock dividend of $688,000 on February 15, 2010 and accrued for the preferred stock dividends of $344,000 at March 31, 2010 which will be included in the next payment scheduled on May 15, 2010.

13. COMMITMENTS AND CONTINGENCIES

Off-Balance-Sheet Risk

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

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CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

A summary of the notional amounts of the Company’s financial instruments relating to extension of credit with off-balance-sheet risk at March 31, 2010 and December 31, 2009 follows:

	(Dollars in thousands)
	March 31, 2010		December 31, 2009
Loans	$	160,980	$	187,148
Standby letters of credit		21,753		21,284
Performance bonds		487		651
Commercial letters of credit		30,021		22,190

Liabilities for losses on outstanding commitments of $246,000 were reported separately in other liabilities at March 31, 2010 and December 31, 2009.

Litigation

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

14. POSTRETIREMENT SPLIT-DOLLAR ARRANGEMENT

As of January 1, 2008, the Company recorded the cumulative effect of a change in accounting principle for recognizing a liability for postretirement cost of insurance for endorsement split-dollar life insurance coverage with split-dollar arrangement for employees and non-employee directors in the amount of $1.4 million as a reduction of equity. On a monthly basis, the Company records benefit expense of such insurance coverage. Benefit expense during the quarter ended March 31, 2010 and 2009 amounted to approximately $25,000.

15. PREFERRED STOCK AND COMMON STOCK WARRANTS

The Company entered into Securities Purchase Agreements with a limited number of institutional and other accredited investors, including insiders, to sell a total of 73,500 shares of mandatorily convertible non-cumulative non-voting perpetual preferred stock, series B, without par value (the “Series B Preferred Stock”) at a price of $1,000 per share, for an aggregate gross purchase price of $73.5 million. This private placement closed on December 31, 2009, and the Company issued an aggregate of 73,500 shares of Series B Preferred Stock upon its receipt of consideration in cash.

The Series B Preferred Stock was mandatorily convertible in to common stock on the third business day following the approval by the holders of common stock of the conversion at an initial conversion price of $3.75 per share if shareholder approval was obtained by a specified date, which did occur. The conversion price of $3.75 was less than the fair value of $5.23 per share of our common stock on December 29, 2009, the commitment date for the issuance of the Series B Preferred Stock. The Series B Preferred Stock was issued with a beneficial conversion feature with an intrinsic value of $1.48 per share or at a discount of $29,007,972.

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CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Series B Preferred Stock converted into 19,599,981 million shares of Center Financial’s common stock effective March 29, 2010, after the Company received shareholder approval of such conversion at a Special Meeting of Shareholders held on March 24, 2010. The conversion ratio for each share of Series B Preferred Stock was equal to the quotient obtained by dividing the Series B Share Price of $1,000 by the conversion price of $3.75. The shares issued in this private placement were registered on a Form S-3 Registration Statement, as amended, which became effective April 8, 2010, thus removing the restrictions on resale.

On March 29, 2010, the date of conversion, the unamortized discount due to the beneficial conversion feature is immediately recognized as a dividend and is accounted for as a charge to retained earnings and a reduction of net income available to common shareholders in the earnings per share computation.

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

The Company entered into a purchase agreement with the U.S. Treasury Department on December 12, 2008, pursuant to which the Company issued and sold 55,000 shares of the Company’s fixed-rate cumulative perpetual preferred stock for a total purchase price of $55.0 million, and a 10-year warrant to purchase 864,780 shares of the Company’s common stock at an exercise price of $9.54 per share. The number of shares underlying the Warrant was reduced to 432,290 effective December 31, 2009 as a result of the fourth quarter capital raises described above. The Company will pay the U.S. Treasury Department a five percent dividend annually for each of the first five years of the investment and a nine percent dividend thereafter until the shares are redeemed. The cumulative dividend for the preferred stock is accrued for and payable on February 15, May 15, August 15 and November 15 of each year.

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

In determination of the fair value of preferred stock and common stock warrants, certain assumptions were made. The Binomial Lattice model was used with the following assumptions for common stock warrants:

• Risk-free interest rate: The constant maturities par yield curve based on Treasury yields provided by Federal Reserve, after interpolating the yield curve beyond the maturities provided in the release data, was used to derive a risk-free interest rate curve.

• Stock price volatility: The volatility assumption utilized in the valuation should represent the “expected” volatility, which may or may not be the same as historical volatility. Since market events of the second half of 2008 are not likely to repeat given the current government ownership of major banks, the high market volatility during the second half of the year should be assigned a lower weighting in the 10-year term of the historical volatility. As a result of this adjustment, expected volatility of 32.0% was used in the valuation as compared to 36.5% of historical volatility.

• Dividend rate: The Company utilized a constant dividend payment assumption in the model. The $0.05 per share per quarter constant payment is consistent with the Company’s then current policy and Management’s intention.

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CENTER FINANCIAL CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For preferred stock, the Company used a discount cash flow model to calculate the fair value with the following assumptions:

• Dividend rate of 5% from year 1 to year 5 and 9% thereafter was used in accordance with the terms and conditions of the preferred stock. Expected life was assumed 10 years, considering the contractual term of 10 years. Risk-free interest rate was assumed at 3.66%, which is the 10-year U.S. Treasury Constant Maturity Rate for 2008. The assumed discount rate was 12% based on review of certain references. Certain actual preferred equity offerings rates in 2008 ranged from 7% to 12%. TARP is considered cheaper financing for capital and one of the objectives of the TARP is providing cheaper financing to help the capital situation in the banking sector. In this regard, the assumed discount rate should be higher than the coupon rate of 9%.

Using these assumptions, the fair value of common stock warrants amounted to $1.4 million and the fair value of the preferred stock amounted to $37.2 million. The relative fair values of preferred stock and common stock warrants were 96.3% and 3.7%, respectively. The total proceeds of $55.0 million were allocated, based on the relative fair value, to preferred stock in the amount of $52.9 million for preferred stock and $2.1 million for common stock warrants on December 12, 2008, respectively.

16. SUBSEQUENT EVENTS

FDIC-assisted Purchase and Assumption – Innovative Bank

On April 16, 2010, the California Department of Financial Institutions closed Innovative Bank, Oakland, California, and appointed the Federal Deposit Insurance Corporation (“FDIC”) as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement with loss sharing. Through this agreement, Center Bank now operates four additional branches in California.

The following table summarizes the gross book values of items purchased and assumed as recorded on Innovative Bank’s financial statement as of the transaction date, and does not include the fair value and other purchase accounting adjustments. The Company expects to finalize and record all opening balance purchase accounting adjustments during the second quarter of 2010. Significant adjustments to the book values of net assets assumed include, but are not limited to, recognition of the core deposit intangible and FDIC loss sharing receivable assets, and adjustment of loans, other real estate owned, time deposits and term debt to fair value. Additionally, Center Bank has a 90-day option to purchase any or all of the Innovative Bank’s owned premises and to assume any or all of the Innovative Bank’s leased premises.

	April 16, 2010
(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	3,485
Due from banks		49,120
Investment securities		13,125
Loans, net		161,167
Other real estate owned		2,132
Other assets		614
Total assets acquired	$	229,643
Liabilities assumed:
Deposits	$	209,313
FHLB borrowings		20,045
Other liabilities		1,743
Total liabilities assumed	$	231,101
Net assets acquired	$	(1,458	)

Center Bank assumed both the insured and non-insured deposits balance, at a premium of 0.5 percent. The loss sharing agreement between the FDIC and Center Bank, which covers all loans and other real estate owned that have been assumed, the business combination fair value adjustments, significantly mitigates the risk of future loss on the loan portfolio acquired. Under the terms of the loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries. The reimbursed losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the assumption. New loans made after that date are not covered by the loss sharing agreement.

Upon closing of the transaction, Center Bank is entitled to receive $20.0 million in cash for asset discount and negative transaction equity net of deposit premium paid. As part of the transaction, the FDIC received one million Equity Appreciation Instruments (“EAI”) based on Center Financial’s stock price and exercised all EAI’s realizing a gain of approximately $1.4 million on April 26, 2010.

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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 the Company’s consolidated results of operations for the three months ended March 31, 2010 and 2009 and financial condition as of March 31, 2010 and December 31, 2009. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2009 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. All statements other than statements of historical fact are forward looking statements. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because the business of the Company involves inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. Risks and uncertainties include, but not limited to, possible future deteriorating economic conditions in the Company’s areas of operation; 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; increased competition among depository institutions; successful completion of planned acquisitions and effective integration of the acquired entities; the economic and regulatory effects of the continuing war on terrorism and other events of war, including the wars in Iraq and Afghanistan; the effect of natural disasters, including earthquakes, fires and hurricanes; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. All of these risks could have a material adverse impact on the Company’s financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. For additional information concerning these factors, see “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, 2009, as supplemented by the information contained in this report.

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, deferred income taxes 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

Investment securities generally must be classified as held-to-maturity, available-for-sale or trading. The appropriate classification is based partially on the Company’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 with respect to 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 the Company’s investment securities are generally determined by reference to quoted market prices and reliable independent sources.

To determine whether a debt security is other-than temporarily impaired, for debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the

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investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. In instances where a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than temporary impairment need to be recognized in the statement of operations. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Loan Sales

Certain Small Business Administration loans and other loans that the Company has the intent to sell prior to maturity are designated as held for sale typically at origination and recorded at the lower of cost or market value, on an aggregate basis. Upon management’s decision, certain loans in the portfolio may be reclassified to the held for sale category prior to any commitment by the Company to sell the loans. Such a decision is usually made to rebalance the loan portfolio and to better manage the Company’s liquidity and capital resources. 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 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 or liabilities are recorded when loans are sold with servicing retained, 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%. Net servicing assets, or servicing assets net of servicing liabilities, are amortized in proportion to and over the period of estimated future servicing income. Management periodically evaluates the net servicing asset for impairment, which is the carrying amount of the net servicing asset in excess of the related fair value. Impairment, if it occurs, is recognized as a write-down in the period of impairment.

Allowance for Loan Losses

Loan losses are charged, and recoveries are credited to the allowance for loan losses. Additions to the allowance are charged to the provision for loan losses. The allowance for loan losses is maintained at a level considered adequate by management to absorb inherent losses in the loan portfolio. The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the loan portfolio, consideration of historical loan loss experience, current economic conditions, changes in the composition of the loan portfolio, analysis of collateral values, and other pertinent factors. While management uses available information to recognize possible losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additional allowance based on their judgments about information available to them at the time of their examination.

OREO

The Company records the property at the lower of its carrying value or its fair value less anticipated disposal costs. Any write-down of OREO is charged to earnings. The Company may make loans to potential buyers of OREO to facilitate the sale of OREO. In those cases, all loans made to such buyers must be reviewed under the same guidelines as those used for making customary loans, and must conform to the terms and conditions consistent with the Company’s loan policy. Any deviations from this policy must be specifically noted and reported to the appropriate lending authority. The Company follows ASC 360-20, Real Estate Sales, when accounting for loans made to facilitate the sale of OREO. Profit on real estate sales transactions shall not be recognized by the full accrual method until all of the following criteria are met:

• A sale is consummated;

• The buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property;

• The seller’s receivable is not subject to future subordination; and

• The seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property.

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Impaired Loans

Loans are measured for impairment when it is probable that not all amounts, including principal and interest, will be collected in accordance with the contractual terms of the loan agreement. The amount of impairment and any subsequent changes are recorded through the provision for loan losses as an adjustment to the allowance for loan losses. Impairment is measured either based on the present value of the loan’s expected future cash flows or the estimated fair value of the collateral less related liquidation costs. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The Company evaluates consumer loans for impairment on a pooled basis. These loans are generally smaller homogeneous loans, and are evaluated on a portfolio basis accordingly.

Deferred Taxes

Deferred income taxes are provided for using an asset and liability approach. Deferred income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the interim consolidated financial statements. As of March 31, 2010, the Company’s deferred tax assets were primarily due to the allowance for loans losses.

A valuation allowance has been established against the deferred tax asset due to an uncertainty of realization. The valuation allowance is reviewed quarterly to analyze whether there is sufficient positive or negative evidence to support a change in management’s judgment about the realizability of the related deferred tax asset.

Share-based Compensation

Beginning January 1, 2006 as discussed in Note 5 to the interim consolidated financial statements, the Company is required 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.

Recent Developments

2009 Fourth Quarter Capital Raises

The Company entered into Securities Purchase Agreements with a limited number of institutional and other accredited investors, including insiders, to sell a total of 73,500 shares of mandatorily convertible non-cumulative non-voting perpetual preferred stock, series B, without par value (the “Series B Preferred Stock”) at a price of $1,000 per share, for an aggregate gross purchase price of $73.5 million. This private placement closed on December 31, 2009, and the Company issued an aggregate of 73,500 shares of Series B Preferred Stock upon its receipt of consideration in cash.

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The Series B Preferred Stock converted into 19,599,981 million shares of Center Financial’s common stock effective March 29, 2010 after the Company received shareholder approval of such conversion at a Special Meeting of Shareholders held on March 24, 2010. The conversion ratio for each share of Series B Preferred Stock was equal to the quotient obtained by dividing the Series B Share Price of $1,000 by the conversion price of $3.75. The shares issued in this private placement were registered on a Form S-3 Registration Statement, as amended, which became effective April 8, 2010, thus removing the restrictions on resale.

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

Informal Regulatory Agreements

Effective December 18, 2009, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and the Department of Financial Institutions (the “DFI”). The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to facilitate improvement in its financial condition. In accordance with the MOU, the Bank agreed among other things to (a) develop and implement strategic plans to restore profitability; (b) develop a capital plan containing specified elements including achieving by December 31, 2009 and thereafter maintaining a Leverage Capital Ratio of not less than 9% and a Total Risk-Based Capital Ratio of not less than 13%; (c) refrain from paying cash dividends without prior regulatory approval; (d) reduce the amounts of its assets adversely classified or criticized in its most recent FDIC examination or internally graded Special Mention within certain specified time parameters; (e) increase the allowance for loan and lease losses (“ALLL”) by $18.7 million (which was completed in the second quarter of 2009) and thereafter maintain an appropriate ALLL balance; (f) develop and implement certain specified policies and procedures relating to the ALLL, troubled debt restructurings, and non-accrual and impaired loans; (g) develop and implement a plan for reducing concentrations of commercial real estate loans; (h) make certain revisions to the Bank’s liquidity policy concerning “high-rate” deposits and reduce the Net Non-Core Funding Dependency Ratio to less than 40% by December 31, 2010; (i) conduct a complete review of management and staffing and submit written findings to the FDIC and the DFI concerning the same; (j) notify the FDIC and the DFI prior to appointing any new director or senior executive officer; (k) refrain from establishing any new offices without prior regulatory approval; and (l) submit written quarterly progress reports to the FDIC and the DFI detailing the form and manner of any actions taken to secure compliance with the MOU and the results thereof.

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

The MOUs will remain in effect until modified or terminated by the FRB, the FDIC and the DFI. We do not expect the actions called for by the MOUs to change our business strategy in any material respect, although they may have the effect of limiting or delaying the Bank’s or the Company’s ability or plans to expand. The board of directors and management of the Bank and the Company have taken various actions to comply with the MOUs, and will diligently endeavor to take all actions necessary for compliance. Management believes that the Bank and the Company are currently in substantial compliance with the terms of the MOUs, although formal determinations of compliance with the MOUs can only be made by the regulatory authorities. In that regard, the Bank’s Leverage Capital Ratio and Total Risk-Based Capital ratios as of March 31, 2010 were 12.46% and 17.73%, considerably in excess of the required ratios for the Bank.

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EXECUTIVE OVERVIEW

The company recorded consolidated net income for the first quarter of 2010 of $2.8 million, net loss available for common shareholders of $26.9 million, or a loss of $1.27 per basic and diluted common share compared to consolidated net loss of $2.7 million, or loss of $0.19 per basic and diluted common share in the first quarter of 2009. The following were significant highlights related to first quarter of 2010 results as compared to the corresponding period of 2009:

• The Company recorded a loss of $1.27 per common share in spite of recording consolidated net income of $2.8 million because of the effects of the beneficial conversion feature of the preferred stock that was issued in December 2009. The $29.0 million value assigned to that beneficial conversion feature is deemed, for accounting purposes, to be a dividend on the preferred stock upon its conversion to common share on March 29, 2010. The entire amount of this deemed dividend is subtracted from net income to arrive at a net loss available to common shareholders for the first quarter of 2010.

• Net interest income before provision for loan losses was $16.4 million and $15.9 million for three months ended March 31, 2010 and 2009, respectively. Due to the increase in non-accrual loans, the average yield on loans for the first quarter of 2009 decreased to 5.68% compared to 5.91% for the same quarter in 2009, a decrease of 23 basis points. The average investment portfolio for the first quarter of 2010 and 2009 was $376.7 million and $205.2 million, respectively. The average yields on the investment portfolio for the first quarter of 2010 and 2009 were 3.17% and 4.53%, respectively.

• The net interest margin for the first quarter of 2010 increased to 3.41% compared to 3.34% for the same period of 2009. Loan yields declined 7 basis points whereas the cost of deposits declined 90 basis points. Interest income on all non-accrual loans amounting to $377,000 was not recognized during the first quarter of 2010 including the reversal of interest income on loans classified to non-accrual status during the quarter compared to $495,000 during the same period in 2009. The cost of interest-bearing liabilities decreased to 1.94% for the first quarter of 2009 as compared to 2.92% for the same period in 2009.

• The provision for loan losses was $7.0 million for the three months ended March 31, 2010 compared to $14.5 million for the same period in 2009. The decrease was primarily due to a stabilization of risk factors.

• The Company sold $56.8 million of securities available for sale in U.S. Government Sponsored Enterprise investment securities and realized a gain of $2.2 million during the three months ended March 31, 2010 as compared to a very minimal loss during the same period in 2009.

• The Company also recorded OREO expense of $959,000 during the three months ended March 31, 2010 compared to $6,000 during the same period in 2009. All of the four properties owned by the Company were acquired during the past year and most of the expenses were related to fair value adjustments due to further decline in values of the properties.

• The Company’s efficiency ratio improved to 49.1% for the three months ended March 31, 2010 compared to 51.7% for the same period in 2009. The improvement relates to the increase in net interest income and gain on sale of securities available for sale offset by increases in the FDIC assessment and fair value adjustment charges for other real estate owned.

• Return on average assets and return on average equity increased to 0.53% and 4.34%, respectively, for the three months ended March 31, 2010, compared to (0.54)% and (4.94)% during the same period in 2009. Return on average assets and the return on average equity increased due to the Company’s return to profitability primarily resulting from the improvement in the net interest margin, a decrease in the loan loss provision and an increase total noninterest income during the first quarter of 2010 as compared to the same period in 2009.

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

• The Company’s gross loans decreased by $16.4 million, or 1.1%, during the three months ended March 31, 2010. Net loans and loans held for sale decreased by $18.8 million, or 1.3%, to $1.46 billion at March 31, 2010, as compared to $1.48 billion at December 31, 2009. The decrease in the loan portfolio was mainly the result of a lower levels of loan production and higher levels of loan pay-offs during the first quarter of 2010. The continued economic downturn has adversely affected the ability to originate loans in the current quarter.

• Total nonperforming loans increased to $70.4 million as of March 31, 2010 from $63.5 million as of December 31, 2009 and $56.3 million as of March 31, 2009, respectively. The ratio of nonperforming loans to total gross loans

27

increased to 4.63% at March 31, 2010 compared to 4.12% at December 31, 2009. The ratio of the allowance for loan losses to total nonperforming loans decreased to 87% at March 31, 2010, as compared to 92% at December 31, 2009 and our allowance for loan losses to total gross loans increased to 4.01% at March 31, 2010 compared to 3.81% at December 31, 2009.

• Total deposits decreased $122.4 million or 7.0% to $1.63 billion at March 31, 2010 compared to $1.75 billion at December 31, 2009. The decrease in deposits resulted mainly from decreases in interest-bearing deposits by customers seeking higher rates.

• The ratio of net loans to total deposits increased to 89.8% at March 31, 2010 as compared to 84.6% at December 31, 2009 due to the fact that deposits decreased more than loans during the first quarter of 2010.

EARNINGS PERFORMANCE ANALYSIS

As previously noted and reflected in the interim consolidated statements of operations, the Company recorded consolidated net income of $2.8 million during the three months ended March 31, 2010 compared to consolidated net loss of $2.7 million during the same period in 2009. The Company earns income from two primary sources: net interest income, which is the difference between interest income generated from the successful deployment of earning assets and interest expense created by interest-bearing liabilities; and noninterest income, which is basically fees and charges earned from customer services less the operating costs associated with providing a full range of banking services to customers.

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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:

	Three Months Ended March 31,
	2010						2009
	Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield  1)		Average Balance		Interest Income/ Expense		Annualized Average Rate/Yield  1)
Assets:
Interest-earning assets:
Loans 2)	$	1,474,122	$	20,628	5.68	%	$	1,668,873	$	24,311	5.91	%
Federal funds sold		103,624		60	0.23			56,598		35	0.25
Investments 3) 4)		376,699		2,944	3.17			205,180		2,291	4.53
Total interest-earning assets4)		1,954,445		23,632	4.90			1,930,651		26,637	5.60
Noninterest—earning assets:
Cash and due from banks		84,983						41,163
Bank premises and equipment, net		13,231						14,750
Customers’ acceptances outstanding		2,193						3,851
Accrued interest receivables		6,437						6,853
Other assets		70,425						45,940
Total noninterest-earning assets		177,269						112,557
Total assets	$	2,131,714					$	2,043,208
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Deposits:
Money market and NOW accounts	$	492,797	$	1,303	1.07	%	$	452,204	$	2,221	1.99	%
Savings		91,507		611	2.71			51,343		451	3.56
Time certificates of deposit over $100,000		522,126		2,357	1.83			645,656		4,763	2.99
Other time certificates of deposit		234,163		1,190	2.06			147,355		1,290	3.55
		1,340,593		5,461	1.65			1,296,558		8,725	2.73
Other borrowed funds		148,239		1,603	4.39			176,864		1,818	4.17
Long-term subordinated debentures		18,557		140	3.06			18,557		192	4.20
Total interest-bearing liabilities		1,507,389		7,204	1.94			1,491,979		10,735	2.92
Noninterest-bearing liabilities:
Demand deposits		350,135						305,690
Total funding liabilities		1,857,524			1.57	%		1,797,669			2.42	%
Other liabilities		15,742						21,799
Total noninterest-bearing liabilities		365,877						327,489
Shareholders’ equity		258,448						223,740
Total liabilities and shareholders’ equity	$	2,131,714					$	2,043,208
Net interest income4)			$	16,428					$	15,902
Cost of deposits					1.31	%					2.21	%
Net interest spread 5)					2.97	%					2.68	%
Net interest margin 6)					3.41	%					3.34	%

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 $71,000 for the three months ended March 31, 2010 and $143,000 for the same period in 2009. Amortized loan fees have been included in the calculation of net interest income. Nonperforming loans have been included in the table for computation purposes, but the foregone interest on such loans is excluded.

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

⁴⁾ Interest income on a tax equivalent basis for tax-advantaged investments was not included in the computation of yields. Such income amounted to $0 and $4,000 for the three months ended March 31, 2010 and 2009, respectively.

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

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

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

	Three Months Ended March 31, 2010 vs. 2009 Increase (Decrease) Due to Change In
	Volume			Rate 7)			Total
Earning assets:
Interest income:
Loans 8)	$	(2,753	)	$	(930	)	$	(3,683	)
Federal funds sold		27			(2	)		25
Investments 9)		1,492			(839	)		653
Total earning assets		(1,234	)		(1,771	)		(3,005	)
Interest expense:
Deposits and borrowed funds:
Money market and super NOW accounts		185			(1,103	)		(918	)
Savings deposits		288			(128	)		160
Time certificates of deposits		(221	)		(2,285	)		(2,506	)
Other borrowings		(306	)		91			(215	)
Long-term subordinated debentures		—			(52	)		(52	)
Total interest-bearing liabilities		(54	)		(3,477	)		(3,531	)
Net interest income	$	(1,180	)	$	1,706		$	526

⁷⁾ Average rates/yields for these periods have been annualized.

⁸⁾ 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 $71,000 for the three months ended March 31, 2010 and $143,000 for the same period in 2009. Amortized loan fees have been included in the calculation of net interest income. Nonperforming loans have been included in the table for computation purposes, but the foregone interest on such loans is excluded.

⁹⁾ Interest income on a tax equivalent basis for tax-advantaged investments was not included in the computation of yields. Such income amounted to $0 and $4,000 for the three months ended March 31, 2010 and 2009, respectively.

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

Total interest and dividend income for the three months ended March 31, 2010 was $23.6 million compared to $26.6 million for the same period in 2009. The decrease was primarily due to an increase in average nonperforming loans and the reduction in average earning assets. Average net loans decreased by $194.8 million or 11.7% for the three months ended March 31, 2010 compared to the same period in 2009. In addition, interest income on non-accrual loans amounting to $377,000 was not recognized during the first quarter of 2010 compared to $495,000 during the same period in 2009.

Total interest expense for the three months ended March 31, 2010 decreased by $3.5 million or 32.6% compared to the same period in 2009. The decrease was primarily due to the gradual decrease in deposit cost and management’s effort to change the deposit mix focusing more on lower cost deposits during the past year. Average interest bearing liabilities decreased by $15.4 million or 1.0% for the three months ended March 31, 2010 compared to the same period in 2009.

As a result, net interest income before provision for loan losses was $16.4 million and $15.9 million for three months ended March 31, 2010 and 2009, respectively. In addition, the net interest margin for the first quarter of 2010 increased to 3.41% compared to 3.34% for the same period of 2009.

Provision for Loan Losses

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

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The provision for loan losses was $7.0 million for the three months ended March 31, 2010 compared to $14.5 million for the same period in 2009. The decrease was primarily due to a stabilization of risk factors. Management believes that the $7.0 million loan loss provision was adequate for the first quarter of 2010.

While management believes that the allowance for loan losses, representing 4.01% of total loans at March 31, 2010 was adequate, future additions to the allowance will be subject to continuing evaluation of the estimated, inherent and other known risks in the loan portfolio. The procedures for monitoring the adequacy of the allowance, and detailed information on the allowance, are included below in “Allowance for Loan Losses.”

Noninterest Income

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

	Three Months Ended March 31,
	2010				2009
	Amount		Percent of Total		Amount			Percent of Total
	(Dollars in thousands)
Customer service fees	$	2,031	35.70	%	$	1,973		52.78	%
Fee income from trade finance transactions		658	11.57			548		14.66
Wire transfer fees		281	4.94			267		7.14
Net gain (loss) on sale of securities available for sale		2,209	38.83			(49	)	(1.31	)
Loan service fees		160	2.81			275		7.36
Other income		350	6.15			724		19.37
Total noninterest income	$	5,689	100.00	%	$	3,738		100.00	%
As a percentage of average earning assets			1.18	%				0.79	%

For the three months ended March 31, 2010, noninterest income was $5.7 million compared to $3.7 million for the same period in 2009, and, as a percentage of average earning assets, increased to 1.18% from 0.79% for the same period in 2009. The increase in the amount primarily resulted from the increase in gain on sale of securities available for sale offset by a reduction in loan service fees and other income for the three months ended March 31, 2010 as compared to the same period in 2009. The primary sources of recurring noninterest income continued to be customer service fees and fee income from trade finance transactions.

Customer service fees for the three months ended March 31, 2010 increased by $58,000 or 2.9% as compared to the same period in 2009. This increase was due primarily to a nominal increase in customer accounts and the increases in fee charges during the past year.

Fee income from trade finance transactions for the three months ended March 31, 2010 increased by $110,000, or 20.1% as compared to the same period in 2009. The increase was due to more international trade activity by the Company’s customers partially due to stabilization of foreign exchange rate with the Korean currency.

The Company sold $56.8 million of securities available for sale in U.S. Government Sponsored Enterprise investment securities and realized a gain of $2.2 million during the three months ended March 31, 2010. The sale was to rebalance the duration and mix of the investment securities portfolio.

Other income decreased by $374,000, or 51.7% for the three months ended March 31, 2010 as compared to the same period in 2009. The decrease was due to a non-recurring income during the first quarter of 2009. The Company entered into a settlement agreement with one of the original defendants in the KEIC litigation and received a settlement payment of $350,000.

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Noninterest Expense

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

	Three Months Ended March 31,
	2010				2009
	Amount		Percent of Total		Amount		Percent of Total
			(Dollars in thousands)
Salaries and employee benefits	$	4,340	39.95	%	$	4,289	42.26	%
Occupancy		1,195	11.00			1,182	11.65
Furniture, fixtures, and equipment		507	4.67			528	5.20
Data processing		464	4.27			595	5.86
Legal fees		306	2.82			243	2.39
Accounting and other professional fees		315	2.90			410	4.04
Business promotion and advertising		257	2.37			338	3.33
Supplies and communications		264	2.43			424	4.18
Security services		235	2.16			245	2.42
Regulatory assessment		986	9.08			592	5.83
Net other real estate owned (income) expense		959	8.83			6	0.06
Other operating expenses		1,035	9.52			1,296	12.78
Total noninterest expense	$	10,863	100.00	%	$	10,148	100.00	%
As a percentage of average earning assets			2.25	%			2.13	%
Efficiency ratio			49.1	%			51.7	%

For the first quarter of 2010, noninterest expense increased 7.0% to $10.9 million, compared to $10.1 million for the same period in 2009. The increase in noninterest expense was primarily attributable to the increases in fair value adjustment charges for other real estate owned, the FDIC insurance premium, legal fees and salaries and employee benefits offset by the decrease in business promotion and advertising expenses, accounting and other professional fees and other operating expenses. Noninterest expense as a percentage of average earning assets was 2.25% for the three months ended March 31, 2010 compared to 2.13% for the same period in 2009.

The Company’s efficiency ratio improved to 49.1% for the three months ended March 31, 2010, compared to 51.7% for the same period in 2009. The improvement relates to the increase in noninterest income especially in gain on sale of securities available for sale and the decrease in overall noninterest expenses offset by increases in the FDIC assessment and fair value adjustment charges for other real estate owned.

Salaries and benefits expenses remained virtually unchanged at $4.3 million for the three months ended March 31, 2010 and 2009. The slight decrease was primarily due to the reduction in the number of staff during the past year with an 8.7% decrease from 300 full time equivalents at March 31, 2009 to 274 at March 31, 2010. Lower than normal expense for the three months ended March 31, 2009 was due to reversal of previously accrued bonus for employees which was suspended by the board during the first quarter of 2009.

Occupancy expenses also remained virtually unchanged at $1.2 million for the three months ended March 31, 2010 and 2009. There were no changes in the scope of the facilities and lease expenses for certain locations have been reduced or unchanged during the past year.

Legal fees increased by 25.9% to $306,000 for the three months ended March 31, 2010 compared to $243,000 for the same period in 2009. The increase was mainly related to enhance collection efforts for delinquent loans.

Accounting and other professional fees decreased to $315,000 for the three months ended March 31, 2010 compared to $410,000 for the same period in 2009. The decrease was primarily due to audit fees incurred during the first quarter of 2009 as a result of additional review of the loan portfolio and allowance for loan losses at that time for which there was no corresponding expense in 2009.

Regulatory assessment expense increased by 66.6% to $986,000 for the three months ended March 31, 2010 compared to $592,000 for the same period in 2009. The increase was mainly the result of the overall increase in the FDIC insurance premium during the past year.

Net OREO expenses increased to $959,000 for the three months ended March 31, 2010 compared to $6,000 for the same period in 2009. The Company owns four properties at March 31, 2010 and most of the properties were acquired during 2009. Of $959,000 expenses, valuation adjustment amounted to $779,000 whereas the remainder relates to carrying expenses. The Company disposed one property during the three months ended March 31, 2010 and realized a very minimal loss from this sale. The sold property did not incur significant carrying expenses during the first quarter of 2010.

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For the three months ended March 31, 2010, other operating expenses decreased 18.3% to $1.7 million as compared to $2.1 million for the same period in 2009. The decreases were due to overall reduction in corporate activities and related support functions during the past year. There were no individually significant items that contributed to the decrease.

The remaining noninterest expenses include such items as furniture, fixture and equipment, data processing, business promotion and advertising, stationery and supplies, telecommunications, postage, courier service, and security service expenses. For the three months ended March 31, 2010, these noninterest expenses amounted to $1.7 million compared to $2.1 million for the same period in 2009. There were no individually significant items that contributed to the decrease.

Provision for Income Taxes

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

The income tax provision (benefit) amounted to $1.5 million and $(2.2) million for the three months ended March 31, 2010 and 2009, respectively, representing effective tax rates of and 35.0% and (45.0)%, 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, dividend exclusions, treatment of share-based payments amortization, increase in cash surrender value of bank owned life insurance and California enterprise zone interest deductions and hiring credits. The Company reduced taxes utilizing the tax credits from investments in the low-income housing projects in the amount of $261,000 for the three months ended March 31, 2009.

Deferred income tax assets or liabilities reflect the estimated future tax effects attributable to differences as to when certain items of income or expense are reported in the financial statements versus when they are reported in the tax returns. The Company’s net deferred tax assets were $13.6 million as of March 31, 2010, and $11.6 million as of December 31, 2009. As of March 31, 2010, the Company’s deferred tax assets were primarily due to the allowance for loan losses.

It is management’s policy to separately disclose any penalties or interest arising from the application of federal or state income taxes. There were no penalties or interest assessed for the quarter ended March 31, 2010.

The Internal Revenue Service (the “IRS”) and the Franchise Tax Board (the “FTB”) have examined the Company’s consolidated federal income tax returns for tax years up to and including 2005. As of March 31, 2010, the Company was under examination by the IRS for the 2005-2006 tax years and by the FTB for the 2006-2007 tax years. The Company does not anticipate any material changes as a result of the examinations. In addition, the Company does not have any unrecognized tax benefits subject to significant increase or decrease as a result of uncertainty.

FINANCIAL CONDITION ANALYSIS

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

Short-term Investments

The Company invests its excess available funds from daily operations primarily in overnight Fed Funds and Money Market Funds. Money Market Funds are composed primarily of government funds and high quality short-term commercial paper. The Company can redeem the funds at any time. As of March 31, 2010 and December 31, 2009, the amounts invested in Federal Funds were $135.2 million and $145.8 million, respectively. The average yield earned on these funds was 0.23% for the three months ended March 31, 2010 compared to 0.25% for the same period in 2009.

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Investment Portfolio

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

	As of March 31, 2010				As of December 31, 2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(Dollars in thousands)
Available for Sale:
U.S. Treasury	$	300	$	300	$	300	$	300
U.S. Governmental agencies securities and U.S. Government sponsored enterprise securities		68,997		69,188		74,001		74,270
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		158,662		161,748		206,975		212,175
U.S. Government sponsored enterprise preferred stock		—		—		—		—
Corporate trust preferred securities		2,718		2,212		2,713		2,404
Mutual Funds backed by adjustable rate mortgages		4,500		4,572		4,500		4,533
Fixed rate collateralized mortgage obligations		50,337		50,979		76,533		76,745
Total available for sale	$	285,514	$	288,999	$	365,022	$	370,427
Total investment securities	$	285,514	$	288,999	$	365,022	$	370,427

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

The Company owns one collateralized debt obligation (“CDO”) security that is backed by trust preferred securities (“TRUPS”) issued by banks and thrifts. The Company recognized an OTTI impairment during 2008 of $9.9 million to reduce the CDO TRUPS to fair value of $1.1 million. As of April 1, 2009, the noncredit related portion of the previous OTTI of $1.6 million was reinstated to the amortized cost of the security. At March 31, 2010, the fair value of the security was $2.2 million due to the decline in the fair value which is considered temporary.

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

• There are few recent transactions.

• Price quotations are not based on current information.

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

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

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

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

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

• Little information is publicly available.

The fair values of securities available for sale are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or prices obtained from independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values.

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

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

The Company continues to utilize Moody’s Analytics to compute the fair value of the CDO TRUPS security. Moody’s continues to update their valuation process. During the third quarter, Moody’s made changes to refine and improve the estimate of default probabilities to better align the valuation methodology with industry practices.

In order to determine the appropriate discount rate used in calculating fair values derived from the income method for the CDO TRUPS security, certain assumptions were made using an exit pricing approach related to the implied rate of return which have been adjusted for general change in market rates, estimated changes in credit quality and liquidity risk premium, specific nonperformance and default experience in the collateral underlying the securities.

The Moody’s Analytics Discounted Cash flow Valuation analysis uses 3-month London Inter-Bank Offered Rate (“LIBOR”) + 300 basis points as a discount rate (to reflect illiquidity – the credit component of the discount rate is embedded in the credit analysis). Approximating the yield premium for the illiquidity of a CDO TRUPS security has proved to be difficult and management found it more useful to measure the price impact for this illiquidity discount. The table below illustrates this.

	Modified	Price impact in percentage for basis point shown
Maturity	Duration	100 bp		200 bp		300 bp		400 bp
10 yr	8.58	9	%	17	%	26	%	34	%
20 yr	14.95	15	%	30	%	45	%	60	%
30 yr	19.69	20	%	39	%	59	%	79	%

There are three maturity assumptions since the final maturity on the CDO TRUPS securities can be no longer than thirty years but may be less than that as well. From the percentage impact in the 300 basis points column, an illiquidity discount of 300 basis points seems to be sufficient and reasonable based on management’s opinion in consideration of current market conditions. The maturity date on the Company’s CDO TRUPS security is October 3, 2032 and that would put the price impact for illiquidity at a 45% to 59% discount as of March 31, 2010.

The spread over LIBOR does not include a credit spread as the probable credit outlook is included in the underlying cash flows. The spread over LIBOR only reflects a liquidity discount. The discount rate that reflects expectations about future defaults is appropriate if using contractual cash flows of a loan. That same rate is not used if using expected (probability-weighted) cash flows because the expected cash flows already reflect assumptions about future defaults; instead, a discount rate that is commensurate with the risk inherent in the expected cash flows should be used.

In addition to the fair value computation of Moody’s Analytics, the Company considers additional factors to determine any OTTI for the CDO TRUPS security including review of trustee reports, monitoring of “break in yield” tests, analysis of current defaults and deferrals and the expectation for future defaults and deferrals. The Company reviews the key financial characteristics for individual issuers (commercial banks or thrifts) in the CDO TRUPS security and tracked issuer participation in the U.S. Treasury Department’s Capital Purchase Program (“CPP”). Also, the Company considers capital ratios, leverage ratios, nonperforming loan and nonperforming asset ratios, in addition to the review of changes to the credit ratings. The credit ratings of the Company’s CDO TRUPS security are “Ca” (Moody’s) and “CC” (Fitch) as of March 31, 2010.

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The cash flow projection for the purpose of assessing OTTI incorporates certain credit events in the underlying collaterals and prepayment assumptions. The projected issuer default rates are assumed at a rate equivalent to 75 basis points applied annually and have a 15% recovery factor after 2 years from the initial default date. The principal is assumed to be prepaying at 1% annually and at 100% at maturity. There were no changes in the assumptions used in the cash flow analysis during the current quarter from the prior quarter.

The Company did not experience an adverse change in cash flows. Furthermore, the CDO TRUPS security experienced no credit ratings deterioration during the first quarter of 2010. As such, based on all of these factors, the Company determined that there was no OTTI adjustment in the fourth quarter. The risk of future OTTI will be highly dependent upon the performance of the underlying issuers. The Company does not have the intention to sell and does not believe it will be required to sell the CDO TRUPS security.

As of March 31, 2010, securities available for sale totaled $289.0 million, compared to $370.4 million as of December 31, 2009. Securities available for sale as a percentage of total assets decreased to 13.9% as of March 31, 2010 compared to 16.9% at December 31, 2009. The Company sold $56.8 million of securities available for sale during the three months ended March 31, 2010. The Company sold $4.7 million (at book value) of its municipal holdings in the held-to-maturity category and reclassified the remaining $3.8 million (at fair value) to the available-for-sale category during the first quarter of 2009. The Company sold municipal securities due to concerns about declining credit quality in the municipal securities market and to improve liquidity in the investment portfolio.

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

Available-for-sale securities represented 100.0% of the investment portfolio as of March 31, 2010 and December 31, 2009. For the three months ended March 31, 2010, the yields on the average investment portfolio were 3.17% as compared to 4.53% for the same period in 2009.

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The following table summarizes, as of March 31, 2010, 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. Treasury	$	300	0.11	%	$	—	—	%	$	—	0	%	$	—	0	%	$	300	0.11	%
U.S. Governmental agencies securities and U.S
Government sponsored enterprise securities	$	5,024	4.95		$	64,164	1.93		$	—	—		$	—	—			69,188	2.15
U.S. Governmental agencies and U.S. Government sponsored and enterprise mortgage-backed securities		—	—			2,308	4.66			33,424	3.43			126,016	3.77			161,748	3.71
Corporate trust preferred securities		—	—			—	—			—	—			2,212	11.30			2,212	11.30
Mutual Funds backed by adjustable rate mortgages		4,572	3.56			—	—			—	—			—	—			4,572	3.56
Fixed rate collateralized mortgage obligations		—	—			—	—			11,187	2.00			39,792	3.21			50,979	2.94
Total available for sale	$	9,896	4.16		$	66,472	2.02		$	44,611	3.07		$	168,020	3.74		$	288,999	3.25
Total investment securities	$	9,896	4.16	%	$	66,472	2.02	%	$	44,611	3.07	%	$	168,020	3.74	%	$	288,999	3.25	%

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

	As of March 31, 2010
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars in thousands)
U.S. Treasury	$	300	$	—		$	—	$	—		$	300	$	—
U.S. Governmental agencies securities and U.S.
Government sponsored enterprise securities		21,950		(45	)		—		—			21,950		(45	)
U.S. Governmental agencies and U.S. Government												—		—
sponsored and enterprise mortgage-backed securities		34,602		(253	)		869		(7	)		35,471		(260	)
Corporate trust preferred securities		2,212		(506	)		—		—			2,212		(506	)
Collateralized mortgage obligations		4,761		(33	)		—		—			4,761		(33	)
Total	$	63,825	$	(837	)	$	869	$	(7	)	$	64,694	$	(844	)

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

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

As of March 31, 2010, the Company had a total fair value of $64.7 million of securities, with unrealized losses of $844,000. We believe these unrealized losses are due to a temporary condition, primarily changes in interest rates, and do not reflect a deterioration of credit quality of the issuers. The market value of securities that have been in a continuous loss position for 12 months or more totaled $869,000, with unrealized losses of $7,000.

All individual securities that have been in a continuous unrealized loss position at March 31, 2010 had investment grade ratings upon purchase. The issuers of these securities have not, to our knowledge, established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status at March 31, 2010. These securities have decreased in value since their purchase dates as market interest rates have changed. However, the Company has the ability, and management intends, to hold these securities until their fair values recover to cost.

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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:

	March 31, 2010				December 31, 2009
	Amount		Percent of Total		Amount		Percent of Total
			(Dollars in thousands)
Real Estate:
Construction	$	16,620	1.1	%	$	21,014	1.4	%
Commercial 10)		985,479	64.7			1,007,794	65.5
Commercial		299,738	19.7			295,289	19.2
Trade Finance 11)		43,370	2.8			39,290	2.6
SBA 12)		65,460	4.3			49,933	3.2
Other 13)		39,792	2.7			50,037	3.3
Consumer		71,980	4.7			75,523	4.8
Total Gross Loans		1,522,439	100.00	%		1,538,880	100.00	%
Less:
Allowance for Loan Losses		61,011				58,543
Deferred Loan Fees		290				331
Discount on SBA Loans Retained		799				864
Total Net Loans and Loans Held for Sale	$	1,460,339			$	1,479,142

¹⁰⁾ Real estate commercial loans are loans secured by deeds of trust on real estate.

^{11 )} Includes advances on trust receipts, clean advances, cash advances, acceptances discounted, and documentary negotiable advances under commitments.

^{12 )} Balance includes SBA loans held for sale of $11.1 million and $9.9 million, at the lower of cost or fair value, at March 31, 2010 and December 31, 2009, respectively.

^{13 )} Consists of term fed funds sold for maturity of greater than 1 day, transactions in process and overdrafts.

The Company’s gross loans decreased $16.4 million, or 1.1%, during the three months ended March 31, 2010. Net loans and loans held for sale decreased $18.8 million, or 1.3%, to $1.46 billion at March 31, 2010, as compared to $1.48 billion at December 31, 2009. The decrease in the loan portfolio was mainly the result of lower levels of loan production and higher levels of loan pay-offs during the first quarter of 2010. Net loans and loans held for sale as of March 31, 2010 represented 70.2% of total assets, compared to 67.5% as of December 31, 2009.

The decrease in gross loans is comprised primarily of net decreases in commercial real estate loans of $22.3 million or 2.2%, other loans (mainly term fed funds sold) of $10.2 million or 20.5%, construction real estate loans of $4.4 million or 20.9% and consumer loans of $3.5 million or 4.7%, offset by net increases in SBA loans of $15.5 million or 31.1%, commercial business loans of $4.4 million or 1.5%, and trade finance loans of $4.1 million, or 10.4%.

Construction real estate loans decreased to $16.5 million representing 1.1% of total loans as of March 31, 2010 compared to $21.0 million representing 1.4% of total loans as of December 31, 2009. As of March 31, 2010, commercial real estate loans remained the largest component of the Company’s total loan portfolio. Commercial real estate loans decreased to $985.5 million representing 64.7% of total loans as of March 31, 2010 compared to $1.0 billion representing 65.5% of total loans as of December 31, 2009. Other loans mainly consisting of term fed funds sold decreased to $39.8 million representing 2.7% of total loans as of March 31, 2010 compared to $50.0 million representing 3.3% of total loans as of December 31, 2009. Consumer loans also decreased to $72.0 million representing 4.7% of total loans as of March 31, 2010 compared to $75.5 million representing 4.8% of total loans as of December 31, 2009.

Commercial business loans increased to $299.8 million as of March 31, 2010 compared to $295.3 million at December 31, 2009. Trade finance loans also increased to $43.4 million as of March 31, 2010 from $39.3 million at December 31, 2009. The Company’s SBA portfolio increased to $65.5 million at March 31, 2010 compared to $49.9 million at December 31, 2009.

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It is currently the management’s intention to focus more on commercial business loans, SBA loans and trade finance loans than construction real estate loans and commercial real estate loans mainly due to the high concentration on real estate loans in the loan portfolio.

During the three months ended March 31, 2010 and 2009, there were no SBA loan sales. As of March 31, 2010, the Company was servicing $107.9 million of sold SBA loans, compared to $113.0 million of sold SBA loans as of December 31, 2009.

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

Nonperforming Assets

Nonperforming assets are comprised of loans on non-accrual status, Other Real Estate Owned (“OREO”), and Troubled Debt Restructurings (“TDRs”). TDRs are considered non-performing assets for regulatory purposes even though they are fully performing, and they are required to be disclosed in the table below. Performing TDRs of $9.8 million at March 31, 2010 and $ 4.4 million at December 31, 2009 are not considered nonperforming assets for purposes of computing the ratios of nonperforming loans to total gross loans, and nonperforming assets as a percentage of total gross loans and OREO. The Company generally places loans on non-accrual status when they become 90 days past due, unless they are both fully secured and in process of collection. OREO consists of real property acquired through foreclosure or similar means that the Company intends to offer for sale.

The Company records OREO at the lower of its carrying value or its fair value less anticipated disposal costs. Any write-down of OREO is charged to earnings. The Company may make loans to potential buyers of OREO to facilitate the sale of OREO. In those cases, all loans made to such buyers must be reviewed under the same guidelines as those used for making customary loans, and must conform to the terms and conditions consistent with the Company’s loan policy. Any deviations from this policy must be specifically noted and reported to the appropriate lending authority. The Company follows ASC 360-20, Real Estate Sales, when accounting for loans made to facilitate the sale of OREO. Profit on real estate sales transactions shall not be recognized by the full accrual method until all of the following criteria are met:

• A sale is consummated;

• The buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property;

• The seller’s receivable is not subject to future subordination; and

• The seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property.

At March 31, 2010, the Company held TDR’s of $37.0 million. A TDR is a debt restructuring in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDR’s may include, but are not necessarily limited to:

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

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

3. a combination of the above.

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

All TDR’s at March 31, 2010 are impaired, and $27.2 million were non-accrual and are included in the table below by the appropriate category. The remaining $9.8 million of the Company’s TDR’s meet the conditions that qualify these loans as performing at March 31, 2010. At December 31, 2009, TDR’s amounted to $27.1 million.

The Company’s classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectibility of principal or interest on the loan. At this point, the Company stops recognizing income from the interest on the loan and reverses any uncollected interest that had been accrued but unpaid. The remaining balance of the loan will be

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charged off if the loan deteriorates further due to a borrower’s bankruptcy or similar financial problems, unsuccessful collection efforts or a loss classification by regulators and/or internal credit examiners. These loans may or may not be collateralized, but collection efforts are continuously pursued. Subsequent collection of payments will reduce the principal balance of the loan until the collateral is liquidated or the loan is paid.

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

	March 31, 2010			December 31, 2009		March 31, 2009
	(Dollars in thousands)
Nonperforming loans:
Real estate:
Construction	$	7,008		$	8,441	$	15,451
Commercial		49,088			42,678		18,870
Commercial		8,871			8,290		18,582
Consumer		348			339		416
Trade Finance		1,498			1,498		1,196
SBA		3,612			2,207		1,774
Total nonperforming loans		70,425			63,453		56,289
Other real estate owned		2,993			4,278		—
Total nonperforming assets	$	73,418		$	67,731	$	56,289
Guaranteed portion of nonperforming SBA loans	$	4,705		$	2,816	$	2,408
Total nonperforming assets, net of SBA guarantee	$	68,713		$	64,915	$	53,881
Performing TDR’s not included above	$	9,811		$	4,414	$	—
Nonperforming loans as a percent of total gross loans		4.63	%		4.12		%3.38
Nonperforming assets as a percent of total loans and other real estate owned		4.81	%		4.39		%3.38
Allowance for loan losses to nonperforming loans		87	%		92		%88

Total nonperforming loans increased to $70.4 million as of March 31, 2010 from $63.5 million as of December 31, 2009 and $56.3 million as of March 31, 2009, respectively. The increase from December 31, 2009 to March 31, 2010 resulted from the increases in commercial real estate loans of $6.4 million, SBA loans of $1.4 million and commercial business loans of $0.6 million offset by the decreases in construction real estate loans of $1.4 million.

The guaranteed portion of nonperforming loans of $4.7 million consists of $3.5 million of SBA loans with SBA guarantees of up to 85% and $1.2 million of trade finance loans under the Export Working Capital Program (“EWCP”) through which a 90% guarantee is provided by SBA. At March 31, 2010, total nonperforming assets, net of the SBA guaranteed portion, were $68.7 million. Total nonperforming assets were $73.4 million, representing 4.63% of total loans at March 31 2009. The increase was a result of continued weak economic conditions in the Southern California economy and its impact on the Company’s commercial real estate and commercial business loans. The adverse economic conditions have impacted the Company’s level of nonperforming assets significantly during the past six quarters.

Loan impairment

Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement, including contractual interest and principal payments. Impaired loans are measured for impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, alternatively, at the loan’s observable market price or the fair value of the collateral if the loan is collateralized, less costs to sell. Loans are identified for specific allowances from information provided by several sources including asset classification, third party reviews, delinquency reports, periodic updates to financial statements, public records, and industry reports. All loan types are subject to impairment evaluation for a specific allowance once identified as impaired.

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The following table provides information on impaired loans:

	As of and for  the three months ended March 31, 2010			As of and for  the twelve months ended December 31, 2009
	(Dollars in thousands)
Impaired loans with specific reserves	$	31,128		$	22,045
Impaired loans without specific reserves		62,905			55,058
Total impaired loans		94,033			77,103
Allowance on impaired loans		(4,308	)		(2,656	)
Net recorded investment in impaired loans	$	89,725		$	74,447
Average total recorded investment in impaired loans	$	94,650		$	91,244
Interest income recognized on impaired loans	$	325		$	603
Interest income recognized on impaired loans on a cash basis	$	221		$	590

During the first quarter of 2010, the continued economic downturn was a major contributor to the increase in impaired loans, along with the continued weakness of the commercial real estate market in Southern California. As of March 31, 2010, specific reserves of $4.3 million represented 13.8% of the impaired loans with specific reserves as compared to 12.0% as of December 31, 2009.

Allowance for Loan Losses

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

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

Formula Allowance for Identified Graded Loans. Non-homogenous loans such as commercial real estate, construction, commercial business, trade finance and SBA loans that are not subject to the allowance for specifically identified loans discussed above are reviewed individually (rated) and subject to a formula allowance. The formula allowance is calculated by applying loss factors to outstanding Pass, Special Mention, Substandard and Doubtful loans. The evaluation of the inherent loss for these loans involves a high degree of uncertainty, subjectivity and judgment because probable loan losses are not identified with a specific loan. In determining the formula allowance, the Company relies on a mathematical formulation that incorporates a six-quarter rolling average of historical losses, which has been adjusted from the twelve quarter analysis used previously. With the recent substantial decline in the Southern California economy and higher unemployment levels, the Company began using the six-quarter rolling average beginning in the fourth quarter of 2008 to better reflect directional consistency in its allowance for loan losses, instead of the twelve-quarter rolling average that the Company had historically applied. As a result, the two most recent quarters were weighted at 65% of the total loss factor as compared to 39% under the calculation used prior to the fourth quarter of 2008. This shortening of the historical period is believed to properly reflect the

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current market environment including the continued economic downturn and higher level of unemployment and the loss trends in the loan portfolio. Current quarter losses are measured against previous quarter loan balances to develop the loss factors. Loans risk rated Pass, Special Mention and Substandard for the most recent three quarters are adjusted to an annual basis as follows:

• the most recent quarter is weighted 4/1;

• the second most recent is weighted 4/2;

• the third most recent is weighted 4/3.

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

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

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

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

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

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

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

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

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

Allowance for Large Groups of Smaller Balance Homogenous Loans. The portion of the allowance allocated to large groups of smaller balance homogenous loans is focused on loss experience for the pool rather than on an analysis of individual loans. Large groups of smaller balance homogenous loans consist of consumer loans to individuals. The allowance for groups of performing loans is based on historical losses over a six-quarter period. In determining the level of allowance for delinquent groups of loans, the Company classifies groups of homogenous loans based on the number of days delinquent and other qualitative factors and trends.

The 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 allowance for loan losses, 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 March 31, 2010 and December 31, 2009:

	March 31, 2010		December 31, 2009
	(Dollars in thousands)
Specific (Impaired loans)	$	4,309	$	2,656
Formula (non-homogeneous)		56,377		55,539
Homogeneous		325		348
Total allowance for loan losses	$	61,011	$	58,543

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

	Three Months Ended March  31, 2010			Year Ended December 31, 2009			Three Months Ended March 31, 2009
	(Dollars in thousands)
Balances
Average total loans outstanding during the period 14)	$	1,534,369		$	1,637,703		$	1,678,518
Total loans outstanding at end of period 14)	$	1,521,350		$	1,537,685		$	1,662,172
Allowance for Loan Losses:
Balance at beginning of period	$	58,543		$	38,172		$	38,172
Charge-offs:
Real estate
Construction		—			6,844			931
Commercial		3,659			23,742			70
Commercial		532			23,795			1,236
Consumer		190			1,599			605
Trade finance		—			911			—
SBA		331			941			129
Total charge-offs		4,712			57,832			2,971
Recoveries
Real estate
Construction		43			—			—
Commercial		—			—			—
Commercial		53			269			25
Consumer		44			394			78
Trade finance		—			1			1
SBA		40			67			22
Total recoveries		180			731			126
Net loan charge-offs		4,532			57,101			2,845
Provision for loan losses		7,000			77,472			14,451
Balance at end of period	$	61,011		$	58,543		$	49,778
Ratios:
Net loan charge-offs to average loans		1.20	%		3.49	%		0.69	%
Provision for loan losses to average total loans		1.85			4.73			3.49
Allowance for loan losses to gross loans at end of period		4.01			3.81			2.99
Allowance for loan losses to total nonperforming loans		87			92			88
Net loan charge-offs to allowance for loan losses at end of period		30.13			97.54			23.18
Net loan charge-offs to provision for loan losses		64.74			73.71			19.69

^{14 )} Total loans are net of deferred loan fees and discount on SBA loans sold.

Based on a quarterly migration and qualitative analysis which evaluates the loan portfolio credit quality, the allowance for loan losses grew to $61.0 million as of March 31, 2010 compared to $58.5 million at December 31, 2009. The Company recorded a provision of $7.0 million for the three months ended March 31, 2010 compared to $14.5 million for the same period of 2009. For the three months ended March 31, 2010, the Company charged off $4.7 million and recovered $180,000 resulting in net loan charge-offs of $4.5 million, compared to net loan charge-offs of $2.8 million for the same period in 2009.

Loan charge-offs for the quarter ended March 31, 2010 were comprised of commercial real estate loans at 78%, commercial business loans at 11%, consumer loans at 4% and SBA loans at 7% of the total charge-offs. Real estate development businesses represented 43% of total loan charge-offs, golf courses 28%, retail stores and other small businesses 18%, hospitality 8% and wholesalers 3%.

The Company is operating in a challenging and uncertain economic environment, including uncertain national and local conditions. Financial institutions continue to be adversely affected by the softening commercial real estate market and the constrained financial markets and have resulted in illiquidity in these markets specific to the Southern California region in which the Company has significant geographic exposure. As a result, continued declines in commercial real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment, including higher unemployment levels and, increase in small business failures and other factors which could have adverse effects on the Company’s borrowers and as a result of this deterioration in economic conditions especially in Southern California, the Company’s allowance for loan losses increased to 4.01% at March 31, 2010 from 3.81% at December 31, 2009 of gross loans.

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Management believes the level of the allowance as of March 31, 2010 is adequate to absorb the estimated losses from any known or inherent risks in the loan portfolio. However, no assurance can be given that economic conditions which adversely affect our service areas or other circumstances may not require increased provisions for loan losses in the future.

The ratio of the allowance for loan losses to total nonperforming loans decreased to 87% as of March 31, 2010 compared to 92% as of December 31, 2009. Management is committed to maintaining the allowance for loan losses at a level that is considered commensurate with estimated and known risks in the portfolio. Although the adequacy of the allowance is reviewed quarterly, management performs an ongoing assessment of the risks inherent in the portfolio. Commercial real estate is the principal collateral for the Company’s loans.

Deposits

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

The Company’s average interest bearing deposit cost decreased to 1.65% for the three months ended March 31, 2010, compared to 2.73% for the same period in 2009. This decrease was a result of the management’s strategy to manage deposit pricing lower during the past year.

The Company can deter, to some extent, the rate sensitive customers who demand high cost certificates of deposit because of local market competition by using wholesale funding sources. As of March 31, 2010, the Company held brokered deposits in the amount of $221.6 million compared to $260.2 million as of December 31, 2009. The Company also had certificates of deposit with State of California in the amount of $80.5 million as of March 31, 2010 and $115.0 million as of December 31, 2009.

Deposits consist of the following:

	March 31, 2010		December 31, 2009
	(Dollars in thousands)
Demand deposits (noninterest-bearing)	$	360,520	$	352,395
Money market accounts and NOW		445,999		528,331
Savings		90,294		86,567
		896,813		967,293
Time deposits
Less than $100,000		227,909		256,020
$100,000 or more		500,590		524,358
Total	$	1,625,312	$	1,747,671

Total deposits decreased $122.4 million or 7.0% to $1.63 billion at March 31, 2010 compared to $1.75 billion at December 31, 2009. During the first quarter of 2010, noninterest-bearing demand deposits increased by $8.1 million, or 2.3%, and represented 22.2% of total deposits at March 31, 2010 compared to 20.2% at December 31, 2009. MMDA and NOW decreased by $82.3 million, or 15.6%, falling to 27.4% of total deposits at March 31, 2010 from 30.2% at December 31, 2009. Savings account balances increased by $3.7 million, or 4.3%, and represented 5.6% of total deposits at March 31, 2010 from 5.0% at December 31, 2009. Time deposits under $100,000, which are classified as core deposits, decreased by $28.1 million, or 11.0%. Jumbo time deposits, or time deposits greater than or equal to $100,000, also decreased by $23.8 million, or 4.5%. The decreases in deposits were mostly due to reduction of brokered MMA balance, transfers from NOW to CDARS as well as outflows of high rate time deposits that were opened under previous campaigns.

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

	March 31, 2010		December 31, 2009
Demand deposits (noninterest-bearing)	22.2	%	20.2	%
Money market accounts and NOW	27.4		30.2
Savings	5.6		5.0
Time deposit less than $100,000	14.0		14.6
Time deposit of $100,000 or more	30.8		30.0
Total	100.0	%	100.0	%

Time deposits by maturity dates are as follows at March 31, 2010:

	$100,000 or Greater		Less Than $100,000		Total
	(Dollars in thousands)
2010	$	419,845	$	138,209	$	558,054
2011		72,611		75,727		148,338
2012		1,616		13,853		15,469
2013		2,359		29		2,388
2014 and thereafter		4,159		91		4,250
Total	$	500,590	$	227,909	$	728,499

Information concerning the average balance and average rates paid on deposits by deposit type for the three months ended March 31, 2010 and 2008 is contained in the tables above in the section entitled “Net Interest Income and Net Interest Margin.”

Other Borrowed Funds

The Company regularly uses FHLB advances and short-term borrowings, which consist of notes issued to the U.S. Treasury to manage Treasury Tax and Loan payments. The Company’s outstanding FHLB borrowings were $146.7 million and $146.8 million at March 31, 2010 and December 31, 2009, respectively. Notes issued to the U.S. Treasury amounted to $1.1 million as of March 31, 2010 compared to $1.6 million as of December 31, 2009. In addition, the Company consummated SBA loan sale during the first quarter of 2010 in the amount of $15.3 million, which is included in borrowed funds and gain recognition is deferred until the 90-day premium refund period expires. The total borrowed amount outstanding at March 31, 2010 and December 31, 2009 was $163.2 million and $148.4 million, respectively.

In addition, the issuance of long-term subordinated debentures 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 March 31, 2010, the Company’s significant fixed and determinable contractual obligations, within the categories described below, by payment date. These contractual obligations, except for the operating lease obligations, are included in the Consolidated Statements of Financial Condition. The payment amounts represent those amounts contractually due to the recipient.

	Remaining 9 months  in 2010		2011		2012		2013		2014		2015 &  thereafter		Total
	(Dollars in thousands)
Debt obligations 15)											$	18,557	$	18,557
FHLB advances		273		25,381		100,295		157		167		20,477	$	146,750
Deposits		575,426		161,041		22,836		7,604		6,408		718	$	774,033
Operating lease obligations		1,768		1,639		1,548		1,094		902		1,497	$	8,448
Total contractual obligations	$	577,467	$	188,061	$	124,679	$	8,855	$	7,477	$	41,249	$	947,788

^{15 )} Includes principal payment only and may be redeemed quarterly by the issuer on or after January 7, 2009.

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LIQUIDITY AND MARKET RISK/INTEREST RISK MANAGEMENT

Liquidity

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

As a means of augmenting the liquidity sources, the Company has available a combination of borrowing sources comprised of FHLB advances, federal funds lines with various correspondent banks, and access to the wholesale markets. The Company believes these liquidity sources to be stable and adequate. At March 31, 2010, the Company was not aware of any information that was reasonably likely to have a material adverse effect on our liquidity position.

The liquidity of the Company is primarily dependent on the payment of cash dividends by its subsidiary, Center Bank, subject to limitations imposed by the laws of the State of California, and by the terms of the MOUs between the Company and the Bank and their respective regulatory agencies (see “Recent Developments” above). Center Financial held $7.7 million in liquid funds with Center Bank at March 31, 2010 which can be used to pay dividends on Center Financial’s preferred stock, interest on its capital trust pass-through securities and other expenses as needed.

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

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

	At March 31, 2010			At December 31, 2009
Net loans	$	1,460,339		$	1,479,142
Deposits		1,625,312			1,747,671
Net loan to deposit ratio		89.8	%		84.6	%

As of March 31, 2010, the Company’s liquidity ratio, which is the ratio of available liquid funds to net deposits and short-term liabilities, was 19.7%, compared to 23.5% at December 31, 2009. The Company’s liquidity ratio decreased as a result of a decrease in cash and other short-term marketable assets during the first quarter of 2010. Total available on balance sheet liquidity as of March 31, 2010 was $320.5 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 39.6% under applicable regulatory guidelines, which assumes all certificates of deposit over $100,000 (“Jumbo CD’s”) as volatile sources of funds. The net non-core fund dependence ratio is the ratio of net short-term investment less non-core liabilities divided by long-term assets. All of the ratios were in compliance with internal guidelines as of and for the three months ended March 31, 2010. In addition to the Company’s on balance sheet liquidity, the Company is looking toward the growth of retail core and time deposits, borrowings and brokered deposits to meet its liquidity needs in the future.

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At March 31, 2010, the Company had available $35.0 million in federal funds lines, $232.7 million in FHLB borrowings and $88.5 million with FRB totaling $356.1 million of available funding sources. Additionally, $91.5 million in investment securities may be pledged as collateral for repurchase agreements and other credit facilities. The Company was approved for the Borrower In Custody arrangement by the FRB in January 2009. Collateral held in such an arrangement may be used to secure advances and/or credit for the discount window program and will provide the Company with additional source of liquidity. This total available funding availability does not include the Company’s ability to purchase brokered deposits, which is limited by internal management policy to 20% of total deposits.

	(Dollars in thousands)
	FHLB			FRB		Federal Funds Facility		Total
Total capacity	$	379,409		$	88,480	$	35,000	$	502,889
Used		(146,750	)		—		—		(146,750	)
Available	$	232,659		$	88,480	$	35,000	$	356,139

Market Risk/Interest Rate Risk Management

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

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

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

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

Interest Rate Risk

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

The Company’s overall strategy is to minimize the adverse impact of immediate incremental changes in market interest rates (rate shock) on net interest income and economic value of equity. Economic value of equity is defined as the present value of assets, minus the present value of liabilities and off-balance sheet instruments. The attainment of this goal requires a balance between profitability, liquidity and interest rate risk exposure. To minimize the adverse impact of changes in market interest rates, the Company simulates the effect of instantaneous interest rate changes on net interest income and economic value of equity (“EVE”) on a quarterly basis. The table below shows the estimated impact of changes in interest rates on our net interest income and market value of equity as of March 31, 2010 and December 31, 2009, respectively, assuming a parallel shift of 100 to 300 basis points in both directions.

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	Net Interest Income  (NII)16)				Economic Value of Equity  (EVE)17)
Change (In Basis Points)	March 31, 2010 % Change		December 31, 2009 % Change		March 31, 2010 % Change		December 31, 2009 % Change
+300	19.44	%	21.71	%	-18.11	%	-16.73	%
+200	12.15	%	14.04	%	-11.65	%	-10.53	%
+100	5.96	%	6.65	%	-6.15	%	-4.77	%
Level
-100	0.44	%	0.46	%	1.29	%	2.10	%
-200	3.90	%	3.56	%	4.07	%	3.54	%
-300	4.64	%	3.48	%	5.30	%	4.48	%

^{16 )} The percentage change represents net interest income for twelve months in a stable interest rate environment versus net interest income in the various rate scenarios

^{17 )} The percentage change represents economic value of equity of the Company in a stable interest rate environment versus economic value of equity in the various rate scenarios

All interest-earning assets and interest-bearing liabilities are included in the interest rate sensitivity analysis at March 31, 2010 and December 31, 2009, respectively. At March 31, 2010 and December 31, 2009, respectively, our estimated changes in net interest income and economic value of equity were within the ranges established by the Board of Directors. The decrease in fixed rate loans as a percentage of the total loan portfolio from 61% at December 31, 2009 to 55% at March 31, 2010 had the most significant impact on the change in EVE.

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

CAPITAL RESOURCES

Shareholders’ equity as of March 31, 2010 was $257.1 million, compared to $256.1 million as of December 31, 2009. The increase was due to net earnings of $2.7 million in the first quarter of 2010. The primary sources of capital have historically been retained earnings and relatively nominal proceeds from the exercise of employee incentive and/or nonqualified stock options, though there were no option exercises in the first quarter of 2010. Shareholders’ equity is also affected by increases and decreases in unrealized losses on securities classified as available-for-sale. In addition, during the fourth quarter of 2009, the Company raised an aggregate of $86.3 million in gross proceeds from the successful consummation of two private placements. See “Recent Developments – Fourth Quarter Capital Raises” above.

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

The Company is committed to maintaining capital at a level sufficient to assure shareholders, customers and regulators that the Company is financially sound and able to support its growth from its retained earnings. From October 2003 to January 2009 Center Financial paid quarterly cash dividends to its shareholders. On March 25, 2009, the Company’s board of directors suspended its quarterly cash dividends based on adverse economic conditions and the Company’s recent losses. The Company has determined that this is a prudent, safe and sound practice to preserve capital. The Company would be required to obtain the U.S. Treasury Department’s approval to reestablish common stock dividend in the future until it has redeemed the preferred stock issued under TARP CPP. The Company is also required to obtain prior approval of the FRB to pay dividends pursuant to is MOU with the FRB (see “Recent Developments – Informal Regulatory Agreements” above).

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The Company is subject to risk-based capital regulations adopted by the federal banking regulators. These guidelines are used to evaluate capital adequacy and are based on an institution’s asset risk profile and off-balance sheet exposures. The risk-based capital guidelines assign risk weightings to assets both on and off-balance sheet and place increased emphasis on common equity. According to the regulations, institutions whose Tier I risk based capital ratio, total risk based capital ratio and leverage ratio meet or exceed 6%, 10% and 5%, respectively, are deemed to be “well-capitalized.” As of March 31, 2010, all of the Company’s capital ratios were above the minimum regulatory requirements for a “well-capitalized” institution.

The MOU the Bank has entered into with the FDIC and the DFI requires the development of a capital plan that includes obtaining a minimum Tier 1 leverage capital ratio of not less than 9% and a total risk-based capital ratio of not less than 13% by December 31, 2009, and maintaining such minimum levels while the MOU remains in effect. The Bank’s regulatory capital ratios as of March 31, 2010 and December 31, 2009 exceeded these requirements.

The following table compares the Company’s and Bank’s actual capital ratios at March 31, 2010, 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)	18.23	%	17.73	%	8.00	%	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)	16.94	%	16.45	%	4.00	%	6.00	%
Tier 1 Capital (to Average Assets)	12.82	%	12.46	%	4.00	%	5.00	%

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2010. In this original evaluation, our CEO and CFO have concluded that disclosure controls and procedures were effective as of March 31, 2010.

In connection with the revision to the financial statements as described in the Explanatory Note of this Amendment No. 1, management reevaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2010. In connection therewith, management identified a material weakness in internal control over financial reporting. Management determined that the Company did not maintain effective controls over the financial reporting process utilized to interpret the applicable accounting literature for computing and allocating the amount attributable to the beneficial conversion feature related to the issuance of preferred stock. Management believes this control deficiency resulted in a misstatement of the net loss applicable to common shareholders. As a result of this material weakness, management concluded that the Company’s disclosure controls were not effective as of March 31, 2010. In light of the material weakness described above, management revised its consolidated financial statements in this Form 10-Q/A as discussed previously to ensure that the computation and allocation of the beneficial conversion feature related to the preferred

49

stock was in conformity with the applicable accounting guidance. Management also believes that the consolidated financial statements included in this Form 10-Q/A were prepared in accordance with U.S. generally accepted accounting principles (GAAP) in all material respects.

Remediation of Material Weakness

The Company is in the process of actively remediating this material weakness. The Company’s plans include the following:

• Establishing extra financial reporting review process in case of unusual or nonroutine transactions.

Management believes the additional control procedure, when implemented and validated, will remediate this material weakness. However, the effectiveness of any system of internal controls is subject to inherent limitations and there can be no assurance that the Company’s internal control over financial reporting will prevent or detect all errors. The Company intends to continue to evaluate and strengthen its internal control over financial reporting system.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for the process to remediate the material weakness described above. As a result of these actions, management of the Company anticipates this material weakness will be remediated by the end of the third quarter of 2010.

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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.

Item 1A: RISK FACTORS

There have been no material changes in the Risk Factors identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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

Not applicable

Item 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4: (REMOVED AND RESERVED)

Item 5: OTHER INFORMATION

Not applicable

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Item 6: EXHIBITS

Exhibit No.	Description
3.1	Restated Articles of Incorporation of Center Financial Corporation1
3.2	Amended and Restated Bylaws of Center Financial Corporation2
3.3	Amendment to Bylaws of Center Financial Corporation3
3.4	Amendment to Articles of Incorporation of Center Financial Corporation (filed as an exhibit to the original)
4.1	Certificate of Determination for Series A Preferred Stock of Center Financial Corporation3
4.2	Certificate of Determination for Series B Preferred Stock of Center Financial Corporation4
10.1	Employment Agreement between Center Financial Corporation and Jae Whan Yoo effective January 13, 20105
10.2	2006 Stock Incentive Plan, as Amended and Restated June 13, 20076
10.3	Lease for Corporate Headquarters Office7
10.4	Indenture dated as of December 30, 2003 between Wells Fargo Bank, National Association, as Trustee, and Center Financial Corporation, as Issuer8
10.5	Amended and Restated Declaration of Trust of Center Capital Trust I, dated as of December 30, 20038
10.6	Guarantee Agreement between Center Financial and Wells Fargo Bank, National Association dated as of December 30, 20038
10.7	Deferred compensation plan and list of participants9
10.8	Split dollar plan and list of participants9
10.9	Survivor income plan and list of participants9
10.10	Warrant to Purchase Common Stock3
10.11	Letter Agreement, dated as of December 12, 2008, including the Securities Purchase Agreement – Standard Terms incorporated by reference therein, between Center Financial Corporation and the United States Department of the Treasury3
10.12	Form of Securities Purchase Agreement between the Company and each of the Purchasers, dated as of December 29, 20094
10.13	Form of Subscription Agreement for Directors or Officers of the Company Dated as of November 24, 200910
10.14	Form of Subscription Agreement for Non-affiliated Investors Executed in November 200910
11	Statement of Computation of Per Share Earnings (included in Note 9 to Interim 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 Form 10-Q for the quarterly period ended June 30, 2008 and incorporated herein by reference

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

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

⁴ Filed as an Exhibit to the Form 8-K filed with the SEC on December 31, 2009 and incorporated herein by reference

⁵ Filed as an Exhibit to the Form 8-K filed with the SEC on January 15, 2010 and incorporated herein by reference

⁶ Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended June 30, 2007 and incorporated herein by reference

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⁷ Filed as an Exhibit of the same number to the Company’s Registration Statement on Form S-4 filed with the SEC on June 14, 2002 and incorporated herein by reference

⁸ Filed as an Exhibit of the same number to the Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference

⁹ Filed as an Exhibit of the same number to the Form 10-Q for the quarterly period ended March 31, 2006 and incorporated herein by reference

¹⁰ Filed as an Exhibit to the Form 8-K filed with the SEC on December 1, 2009 and incorporated herein by reference

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SIGNATURES

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

	Center Financial Corporation
Date: August 13, 2010	By:	/S/    JAE WHAN  YOO
		Jae Whan Yoo President & Chief Executive Officer (Principal Executive Officer)
Date: August 13, 2010	By:	/S/    DOUGLAS J.  GODDARD
		Douglas J. Goddard Executive Vice President & Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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