##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended
    September 30, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto Commission file number
    0-24947
 UCBH Holdings, Inc. 
  Delaware
    
    94-3072450(State or other jurisdiction of incorporation
or organization)
    
    (I.R.S. Employer
Identification No.)
 555 Montgomery Street, San Francisco, California 94111 
  (415) 315-2800 
   
  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 daysYes x   No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
Yes
x   No o APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of November 5,
2004, the Registrant had 45,500,694 shares of common stock outstanding.




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UCBH HOLDINGS, INC.
TABLE OF CONTENTS PART I - FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial Statements
    
    
    1Notes to Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits and Reports on Form 8-K
    
    
    43SIGNATURES
    
    
    44EXHIBIT INDEXExhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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##### Table of Contents



PART I - FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Thousands) At September 30,
    
    At December 31,2004
    
    2003ASSETSCash and due from banks
    
    $
    84,397
    
    
    $
    76,786Federal funds sold
    
    
    45,000
    
    
    
    Investment and mortgage-backed securities available for sale, at fair value
    
    
    1,217,391
    
    
    
    1,221,070Investment and mortgage-backed securities, at cost (fair value
$328,411 at September 30, 2004 and $287,372 at December 31, 2003)
    
    
    323,398
    
    
    
    284,712Federal Home Loan Bank stock and other equity securities
    
    
    43,773
    
    
    
    41,316Loans
    
    
    4,225,293
    
    
    
    3,791,643Allowance for loan losses
    
    
    (59,347
    )
    
    
    (58,126
    )Net loans
    
    
    4,165,946
    
    
    
    3,733,517Accrued interest receivable
    
    
    24,517
    
    
    
    21,756Premises and equipment, net
    
    
    88,183
    
    
    
    84,145Goodwill
    
    
    85,092
    
    
    
    87,437Intangibles, net
    
    
    17,070
    
    
    
    15,117Other assets
    
    
    25,550
    
    
    
    22,071Total assets
    
    $
    6,120,317
    
    
    $
    5,587,927LIABILITIESNoninterest-bearing deposits
    
    $
    397,737
    
    
    $
    324,615Interest-bearing deposits
    
    
    4,622,488
    
    
    
    4,158,906Total deposits
    
    
    5,020,225
    
    
    
    4,483,521Borrowings
    
    
    409,093
    
    
    
    505,542Subordinated debentures
    
    
    136,000
    
    
    
    136,000Accrued interest payable
    
    
    7,401
    
    
    
    8,346Other liabilities
    
    
    72,095
    
    
    
    40,052Total liabilities
    
    
    5,644,814
    
    
    
    5,173,461Commitments and contingencies
    
    
    
    
    
    
    STOCKHOLDERS EQUITYPreferred stock, $.01 par value, authorized 10,000,000 shares,
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, authorized 180,000,000 shares at September 30, 2004
and at December 31, 2003; shares issued and outstanding 45,355,389
at September 30, 2004 and 45,038,378 at December 31, 2003
    
    
    454
    
    
    
    450Additional paid-in capital
    
    
    214,955
    
    
    
    208,990Accumulated other comprehensive loss
    
    
    (4,604
    )
    
    
    (3,245
    )Retained
earnings - substantially restricted
    
    
    264,698
    
    
    
    208,271Total stockholders equity
    
    
    475,503
    
    
    
    414,466Total liabilities and stockholders equity
    
    $
    6,120,317
    
    
    $
    5,587,927
 The accompanying notes are an integral part of these financial statements. Page 1




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UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except for Per Share Data) For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Interest income:Loans
    
    $
    57,156
    
    
    $
    49,854
    
    
    $
    162,597
    
    
    $
    139,833Federal funds sold and due from banks
    
    
    79
    
    
    
    53
    
    
    
    223
    
    
    
    90Investment and mortgage-backed securities
    
    
    19,316
    
    
    
    16,392
    
    
    
    55,680
    
    
    
    51,919Total interest income
    
    
    76,551
    
    
    
    66,299
    
    
    
    218,500
    
    
    
    191,842Interest expense:Deposits
    
    
    17,162
    
    
    
    17,677
    
    
    
    47,565
    
    
    
    52,936Short-term borrowings
    
    
    540
    
    
    
    112
    
    
    
    1,785
    
    
    
    587Long-term borrowings
    
    
    3,976
    
    
    
    3,479
    
    
    
    10,913
    
    
    
    10,359Subordinated debentures
    
    
    2,075
    
    
    
    1,959
    
    
    
    5,985
    
    
    
    5,958Total interest expense
    
    
    23,753
    
    
    
    23,227
    
    
    
    66,248
    
    
    
    69,840Net interest income
    
    
    52,798
    
    
    
    43,072
    
    
    
    152,252
    
    
    
    122,002Provision for loan losses
    
    
    1,644
    
    
    
    2,820
    
    
    
    4,827
    
    
    
    6,644Net interest income after provision for loan losses
    
    
    51,154
    
    
    
    40,252
    
    
    
    147,425
    
    
    
    115,358Noninterest income:Commercial banking and other fees
    
    
    2,700
    
    
    
    1,775
    
    
    
    6,726
    
    
    
    5,168Service charges on deposits
    
    
    632
    
    
    
    515
    
    
    
    1,963
    
    
    
    1,657Gain on sale of securities, net
    
    
    2,566
    
    
    
    3,050
    
    
    
    9,059
    
    
    
    7,866Gain on sale of multifamily loans
    
    
    2,951
    
    
    
    
    
    
    
    2,951
    
    
    
    Gain on sale of SBA loans, net
    
    
    1,115
    
    
    
    1,229
    
    
    
    2,997
    
    
    
    1,746Equity loss in other equity investments
    
    
    (158
    )
    
    
    (38
    )
    
    
    (1,647
    )
    
    
    (114
    )Total noninterest income
    
    
    9,806
    
    
    
    6,531
    
    
    
    22,049
    
    
    
    16,323Noninterest expense:Personnel
    
    
    13,533
    
    
    
    10,133
    
    
    
    38,144
    
    
    
    30,506Occupancy
    
    
    2,326
    
    
    
    1,747
    
    
    
    6,050
    
    
    
    4,273Data processing
    
    
    1,656
    
    
    
    1,453
    
    
    
    4,351
    
    
    
    3,659Furniture and equipment
    
    
    1,647
    
    
    
    1,012
    
    
    
    4,062
    
    
    
    2,548Professional fees and contracted services
    
    
    1,856
    
    
    
    1,198
    
    
    
    4,980
    
    
    
    4,305Deposit insurance
    
    
    187
    
    
    
    185
    
    
    
    589
    
    
    
    511Communication
    
    
    320
    
    
    
    285
    
    
    
    934
    
    
    
    757Core deposit intangible amortization
    
    
    285
    
    
    
    185
    
    
    
    1,000
    
    
    
    1,318Miscellaneous expense
    
    
    4,170
    
    
    
    3,585
    
    
    
    11,637
    
    
    
    9,618Total noninterest expense
    
    
    25,980
    
    
    
    19,783
    
    
    
    71,747
    
    
    
    57,495Income before taxes
    
    
    34,980
    
    
    
    27,000
    
    
    
    97,727
    
    
    
    74,186Income tax expense
    
    
    13,207
    
    
    
    10,232
    
    
    
    35,867
    
    
    
    28,062Net income
    
    $
    21,773
    
    
    $
    16,768
    
    
    $
    61,860
    
    
    $
    46,124Basic earnings per share
    
    $
    0.48
    
    
    $
    0.37
    
    
    $
    1.37
    
    
    $
    1.07Diluted earnings per share
    
    $
    0.46
    
    
    $
    0.36
    
    
    $
    1.30
    
    
    $
    1.02Dividends declared per share
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.12
    
    
    $
    0.09
 The accompanying notes are an integral part of these financial statements. Page 2




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UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands) For the Nine Months EndedSeptember 30,2004
    
    2003Operating activities:Net income
    
    $
    61,860
    
    
    $
    46,124Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    4,827
    
    
    
    6,644Amortization of purchase price adjustments
    
    
    5,623
    
    
    
    (3,003
    )Amortization of core deposit intangibles
    
    
    1,000
    
    
    
    1,587Depreciation and amortization
    
    
    4,448
    
    
    
    4,116(Increase) decrease in accrued interest receivable
    
    
    (3,179
    )
    
    
    1,137(Increase) decrease in other assets
    
    
    (2,289
    )
    
    
    10,976Decrease in accrued interest payable
    
    
    (945
    )
    
    
    (1,192
    )Increase (decrease) in other liabilities
    
    
    34,158
    
    
    
    (19,037
    )Gain on sale of loans and securities, net
    
    
    (13,252
    )
    
    
    (9,612
    )Other, net
    
    
    (1,827
    )
    
    
    9,353Net cash provided by operating activities
    
    
    90,424
    
    
    
    47,093Investing activities:Acquisition, net cash acquired
    
    
    
    
    
    
    48,244Investments and mortgage-backed securities, available for sale:Principal payments and maturities
    
    
    222,873
    
    
    
    499,035Purchases
    
    
    (750,020
    )
    
    
    (802,502
    )Sales
    
    
    615,868
    
    
    
    663,985Called
    
    
    68,136
    
    
    
    98,932Investments and mortgage-backed securities, held-to-maturity:Principal payments and maturities
    
    
    20,328
    
    
    
    18,319Purchases
    
    
    (59,238
    )
    
    
    (185,470
    )Loans originated and purchased, net of principal collections
    
    
    (787,958
    )
    
    
    (649,740
    )Proceeds from the sale of loans
    
    
    211,054
    
    
    
    108,880Purchases of premises and other equipment
    
    
    (8,979
    )
    
    
    (5,996
    )Other investing activities, net
    
    
    (2,941
    )
    
    
    Net cash used in investment activities
    
    
    (470,877
    )
    
    
    (206,313
    )Financing activities:Net increase in NOW, checking, money market and savings accounts
    
    
    368,777
    
    
    
    271,257Net increase (decrease) in time deposits
    
    
    167,962
    
    
    
    (69,562
    )Net decrease in short-term borrowings
    
    
    (166,106
    )
    
    
    (33,375
    )Proceeds from long-term borrowings
    
    
    64,000
    
    
    
    Proceeds from stock option exercises
    
    
    3,396
    
    
    
    5,232Payment of cash dividend on common stock
    
    
    (4,965
    )
    
    
    (3,381
    )Net cash provided by financing activities
    
    
    433,064
    
    
    
    170,171Net increase in cash and cash equivalents
    
    
    52,611
    
    
    
    10,951Cash and cash equivalents at beginning of period
    
    
    76,786
    
    
    
    58,954Cash and cash equivalents at end of period
    
    $
    129,397
    
    
    $
    69,905Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    80,205
    
    
    $
    71,032Cash paid during the period for income taxes
    
    
    21,911
    
    
    
    32,480Supplemental schedule of non-cash investing and financing activities:Loans securitized
    
    $
    147,134
    
    
    $
    194,178
 The accompanying notes are an integral part of these financial statements. Page 3




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UCBH HOLDINGS, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Summary of Significant Accounting and Reporting Policies Organization UCBH Holdings, Inc. (the Company or UCBH) is a bank holding company
organized under the laws of Delaware that conducts its business through its
principal subsidiary, United Commercial Bank (the Bank or UCB), a
California state-chartered commercial bank. The Bank offers a full range of
commercial and consumer banking products domestically through its retail
branches and other banking offices in California and New York, and
internationally through its full-service branch in Hong Kong, which was opened
during the second half of 2003 under a license granted by the Hong Kong
Monetary Authority. During the first quarter of 2004, the Companys wholly
owned subsidiary UCB Investment Services, Inc. (UCBIS) commenced business.
UCBIS is a registered broker-dealer with the Securities and Exchange Commission
and a member of the National Association of Securities Dealers (NASD) and the
Securities Investor Protection Corporation (SIPC). Basis of Presentation and Principles of Consolidation The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America (GAAP) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X, and include all
normal recurring adjustments which the Company considers necessary for a fair
statement of the financial statements of such periods. Certain information and
note disclosures normally included in financial statements prepared in
accordance with GAAP have been omitted pursuant to such rules and regulations.
The unaudited consolidated financial statements include the accounts of the
Company and most of its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
The wholly owned subsidiaries not included in the consolidated results are
certain special purpose trusts established for the purpose of issuing
Guaranteed Preferred Beneficial Interests in the Companys Junior Subordinated
Debentures. These trusts are excluded pursuant to Financial Accounting
Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable
Interest Entities (FIN 46R), issued by the FASB in December of 2003, as the
Company is not deemed to be the primary beneficiary. The Company also invests
in affordable housing and small business corporations, limited liability
companies, and limited partnerships as a result of Community Reinvestment Act
(CRA) requirements. Such investments are generally accounted for under the
equity or cost method pursuant to Accounting Principles Board Opinion Number
18, The Equity Method of Accounting for Investments in Common Stock. None of
these investments meet the requirements of FIN 46R, and therefore, are not
consolidated. Operating results for the three and nine months ended September 30, 2004,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. Please refer to the audited consolidated financial statements and related
notes thereto included in the Companys Form 10-K for the year ended December
31, 2003, for additional details of the Companys financial position, as well
as for a description of the Companys significant accounting policies, which
have been continued without material change. The details included in the notes
have not changed except as a result of normal transactions in the interim
period and the events mentioned in the notes below. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated results. Page 4




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Reclassification Certain prior period amounts have been reclassified to conform to the
current periods presentation. 2. Recent Accounting Pronouncements Accounting for Stock-Based Compensation In December 2002, the FASB issued Statements of Financial Accounting
Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation - Transition
and Disclosure, which provides guidance on alternative methods of transition
for an entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation. It also amends the
disclosure provision of that statement to require prominent disclosure about
the effects on reported net income of an entitys accounting policy decisions
with respect to stock-based employee compensation. Finally, this statement
amends Accounting Principles Board (APB) Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. The Company has elected to continue accounting for stock-based
compensation in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, no stock-based employee compensation
cost is reflected in the statement of operations, as all options granted have
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation. For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in Thousands, Except Earnings Per Share)Net income as reported
    
    $
    21,773
    
    
    $
    16,768
    
    
    $
    61,860
    
    
    $
    46,124Deduct - Total stock-based employee
compensation
expense determined under fair value
based method
of all awards, net of related tax effects
    
    
    (1,952
    )
    
    
    (1,154
    )
    
    
    (4,704
    )
    
    
    (3,245
    )Pro forma net income
    
    $
    19,821
    
    
    $
    15,614
    
    
    $
    57,156
    
    
    $
    42,879Basic earnings per share:As reported
    
    $
    0.48
    
    
    $
    0.37
    
    
    $
    1.37
    
    
    $
    1.07Pro forma
    
    $
    0.44
    
    
    $
    0.35
    
    
    $
    1.26
    
    
    $
    0.99Diluted earnings per share:As reported
    
    $
    0.46
    
    
    $
    0.36
    
    
    $
    1.30
    
    
    $
    1.02Pro forma
    
    $
    0.42
    
    
    $
    0.33
    
    
    $
    1.20
    
    
    $
    0.95
 If the computed fair values of the stock awards had been amortized to
expense over the vesting period of the awards, pro forma amounts would have
been as shown in the above table. Page 5




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These calculations require the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Companys stock option awards. These models as required by current
accounting pronouncements also require subjective assumptions, including future
stock price volatility, dividend yield, and expected time to exercise, which
greatly affect the calculated values. The following weighted average
assumptions were used in the Black-Scholes option pricing model for options
granted during the three and nine months ended September 30, 2004, and 2003: For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Dividend yield
    
    
    0.45
    %
    
    
    0.50
    %
    
    
    0.43
    %
    
    
    0.57
    %Volatility
    
    
    17.00
    %
    
    
    22.25
    %
    
    
    22.36
    %
    
    
    21.01
    %Risk-free interest rate
    
    
    4.47
    %
    
    
    3.40
    %
    
    
    4.29
    %
    
    
    3.16
    %Expected lives (years)
7.8
    
    
    7.7
    
    
    
    7.5
    
    
    
    7.5
    
    
    
    7.5
 Consolidation of Variable Interest Entities In January 2003, the FASB issued FASB Interpretation No. 46, (FIN 46)
Consolidation of Variable Interest Entities. This interpretation applies
immediately to variable interest entities (VIE) in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to any VIE in which an enterprise
holds a variable interest that is acquired before February 1, 2003. Previously
issued accounting pronouncements require the consolidation of one entity in the
financial statements of another if the second entity has a controlling interest
in the first. In effect, FIN 46 applies broader criteria than just voting
rights in determining whether one entity has a controlling financial interest
in another. Specifically, if by design the owners of the entity have not made
an equity investment sufficient to absorb its expected losses and the owners
lack any one of three essential characteristics of controlling financial
interest, the entity is to be consolidated in the financial statements of its
primary beneficiary. The three characteristics are: (1) the ability to make
decisions about the entitys activities, (2) the obligation to absorb the
expected losses of the entity, and (3) the right to receive the expected
residual returns of the entity. At December 31, 2003, the Company adopted FIN 46R. The FASB issued Fin
46R to clarify the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements and finalizes this statement for public
entities. Under FIN 46R, a VIE is defined as an entity subject to
consolidation based on criteria specified in FIN 46R. In 1998, 2001 and 2002, the Company created certain special purpose trusts
for the purpose of issuing capital securities. Through the third quarter of
2003, these trusts were consolidated into the financial results of the Company.
As discussed in Note 1, under FIN 46R, the trusts are no longer consolidated
as the trusts are deemed VIEs and the Company is not the primary beneficiary.
Consequently, the trusts have been deconsolidated from the financial results of
the Company effective December 31, 2003 with consistent presentation for
periods presented. The impact of this deconsolidation on the Companys financial condition
and operating results was immaterial, resulting primarily in classification
changes on the Balance Sheet. A potential outcome arising as a result of FIN
46R is that the Federal Reserve Bank may no longer allow the capital securities
issued by the trusts to be included in Tier I capital of the Company. The
Federal Reserve has issued proposed rules that these securities will be
grandfathered and will continue to be included in the Companys Tier I capital,
subject to certain limited phase-out limitations to be imposed over time. If
regulatory requirements required exclusion of these securities from Tier I
capital, the Company would remain well capitalized at September 30, 2004. The
Banks Tier I capital and total risk-based capital would be unaffected as the
trusts and their securities have been issued at the holding company level. Page 6




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Certain Financial Instruments with Characteristics of Both Liabilities and
Equities In May 2003, the FASB issued SFAS No. 150 Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity (SFAS
No. 150). This statement requires that an issuer classify financial
instruments that are within its scope as liabilities. Many of those
instruments were classified as equities under previous guidance. Most of the guidance in SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. Certain provisions of SFAS No. 150 as they apply to mandatorily
redeemable noncontrolling interests have been deferred. The deferral of these
provisions is expected to remain in effect while these noncontrolling interests
are addressed in later phases of FASB projects. Excluding these deferred provisions, the adoption of the SFAS No. 150 did
not have a material impact on our consolidated financial statements. Accounting for Certain Loans or Debt Securities Acquired in a Transfer In December 2003, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 03-3 (SOP 03-3), which addresses
accounting for loans or debt securities acquired in a transfer and the
resulting differences between contractual cash flows and cash flows expected to
be collected. This SOP does not apply to loans originated by the Bank. This
SOP limits the yield that may be accreted to the excess of the investors
estimate of undiscounted expected principal, interest, and other cash flows
over the investors initial investment in the loan. SOP 03-3 requires that the
excess of contractual cash flows over cash flows expected to be collected not
be recognized as an adjustment of yield, loss accrual, or valuation allowance.
SOP 03-3 also prohibits carrying over or creation of valuation allowances in
the initial accounting of all loans acquired in a transfer that are within the
scope of this SOP. The prohibition of the valuation allowance carryover
applies to the purchase of individual loans, pools of loans and loans acquired
in a purchase business combination. SOP 03-3 is effective for loans acquired in fiscal years beginning after
December 15, 2004. For loans acquired in fiscal years beginning on or before
December 15, 2004, decreases in cash flows expected to be collected should be
applied prospectively. The Company does not anticipate the adoption of SOP
03-3 to have a material impact on the financial condition or operating results
of the Company. Other-Than-Temporary Impairment and Its Application to Certain Investments In March 2004, the FASB approved the consensus reached on the Emerging
Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments. EITF No. 03-1
clarifies the investment impairment methodology for debt and equity securities
within the scope of SFAS No. 115, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities and SFAS No. 124,
Accounting for Certain Investments Held by Not-For-Profit Organizations and
for equity securities that are not subject to the scope of SFAS No. 115 and not
accounted for under the equity method under Opinion 18 and related
interpretations (hereinafter referred to as cost method investments). Certain disclosure requirements regarding investments accounted for under
SFAS No. 115 and SFAS No. 124 are effective for annual financial statements for
fiscal years ending after December 31, 2003. These currently effective
disclosure requirements have been adopted by the Company and did not have a
material impact on the financial condition or operating results of the Company.
Additional disclosure requirements regarding cost method investments are
effective for annual periods ending after June 15, 2004. The Company does not
anticipate the adoption of these disclosure requirements to have a material
impact on the financial condition or operating results of the Company. Page 7




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In September 2004, the FASB issued a final FASB Staff Position (FSP), FSP
EITF 03-1-1, delaying the effective date of the measurement and recognition
guidance indefinitely. Excluding the deferred guidance, the adoption of EITF
No. 03-1 did not have a material impact on the financial condition or operating
results of the Company. 3. Cash and Due From Banks The following table summarizes the interest-bearing and
noninterest-bearing components of Cash and Due From Banks on the dates
indicated (dollars in thousands): At September 30,
    
    At December 31,2004
    
    2003Interest-bearing
    
    $
    26,686
    
    
    $
    13,899Noninterest-bearing
    
    
    57,711
    
    
    
    62,887Total Cash and Due From Banks
    
    $
    84,397
    
    
    $
    76,786
 The Bank is required to maintain a percentage of its deposit balances as
reserves either in cash or on deposit at the Federal Reserve Bank. At both
September 30, 2004 and December 31, 2003, the reserve requirement was $6.8
million. 4. Business Combinations, Goodwill and Intangibles Assets In July 2003, the Company completed the acquisition of privately held
First Continental Bank (FCB), a full-service commercial bank headquartered in
Rosemead, California. Pro forma consolidated results of operations follow for
the three and nine months ended September 30, 2003 as though FCB had been
acquired as of January 1, 2003 (dollars in thousands, except earnings per
share): For the Three Months Ended
    
    For the Nine Months EndedSeptember 30, 2003
    
    September 30, 2003Net interest income
    
    $
    43,403
    
    
    $
    127,831Net income
    
    $
    16,800
    
    
    $
    47,269Basic earnings per share
    
    $
    0.37
    
    
    $
    1.10Diluted earnings per share
    
    $
    0.36
    
    
    $
    1.05
 In accordance with SFAS No. 141 and No. 142, goodwill resulting from the
Companys acquisitions will not be amortized to expense over a fixed period of
time but will be tested for impairment at least annually. During the second
quarter of 2004, the Company finalized its purchase accounting with respect to
the acquisition and as a result, there was a $2.3 million reduction in
goodwill. As of September 30, 2004 and December 31, 2003, the balance of
goodwill totaled $85.1 million and $87.4 million, respectively. This quarter,
the annual review of goodwill for impairment was performed and no adjustment
was necessary. The Company will continue to monitor goodwill for impairment in
the future. Other than goodwill, the Company has no intangible assets with indefinite
lives. Intangible assets with finite lives, consisting primarily of core
deposit intangibles and loan servicing assets, are amortized over their
estimated period of remaining benefit; such amortization expense was $498,000
and $307,000 for the three months ended September 30, 2004 and 2003,
respectively. Amortization expense of $1.8 million and $1.6 million was
recorded for the nine months ended September 30, 2004 and 2003, respectively.
Core deposit intangible amortization expense was $285,000 and $185,000 for the
three months ended September 30, 2004 and 2003, respectively, and $1.0 million
and $1.3 million for the nine months ended September 30, 2004 and 2003,
respectively. Amortization expense on loan servicing assets was netted against
loan servicing fee income and reported as part of commercial banking and other
fees; such amortization expense was $213,000 and $122,000 for the three months
ended September 30, 2004 and 2003, respectively. Amortization expense on loan
servicing assets was $830,000 and $269,000 for the nine months ended September
30, 2004 and 2003, respectively. Intangible assets are analyzed for impairment
quarterly and adjusted accordingly. During the nine months ended September 30,
2004, intangible assets were reviewed for impairment and $80,000 of capitalized
loan servicing assets was deemed impaired during the second quarter, and the
asset was written down accordingly. Page 8




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The net carrying amount of intangible assets and the associated
accumulated amortization are as follows: As of September 30, 2004
    
    As of December 31, 2003Net Carrying
    
    Accumulated
    
    Net Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    Amortization(Dollars in Thousands)Core deposit intangibles
    
    $
    10,111
    
    
    $
    (2,989
    )
    
    $
    11,111
    
    
    $
    (1,989
    )Loan servicing assets
    
    
    6,959
    
    
    
    (1,131
    )
    
    
    4,006
    
    
    
    (469
    )Total intangible assets
    
    $
    17,070
    
    
    $
    (4,120
    )
    
    $
    15,117
    
    
    $
    (2,458
    )
 The amortization expense for amortizable intangible assets for the years
ending December 31, 2004, 2005, 2006, 2007, 2008 and 2009 is estimated to be
$2.5 million, $2.2 million, $1.8 million, $1.5 million, $1.3 million and $1.2
million, respectively. 5. Loans and Allowance for Loan Losses The following table shows the composition of the Banks loan portfolio by
amount of gross loans in each major loan category at the dates indicated: At September 30,
    
    At December 31,2004
    
    2003(Dollars in Thousands)Commercial:Secured by real estate-nonresidential
    
    $
    1,810,693
    
    
    $
    1,724,179Secured by real estate-multifamily
    
    
    1,287,600
    
    
    
    1,162,565Construction
    
    
    267,954
    
    
    
    293,875Commercial business
    
    
    407,853
    
    
    
    302,159Total commercial
    
    
    3,774,100
    
    
    
    3,482,778Consumer:Residential mortgage (one to four family)
    
    
    412,859
    
    
    
    274,392Other
    
    
    45,669
    
    
    
    43,117Total consumer
    
    
    458,528
    
    
    
    317,509Total gross loans
    
    
    4,232,628
    
    
    
    3,800,287Net deferred loan origination fees
    
    
    (7,335
    )
    
    
    (8,644
    )Loans
    
    
    4,225,293
    
    
    
    3,791,643Allowance for loan losses
    
    
    (59,347
    )
    
    
    (58,126
    )Net loans
    
    $
    4,165,946
    
    
    $
    3,733,517
 Page 9




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The following table sets forth information concerning the Banks allowance
for loan losses for the periods indicated: At or for the Nine Months EndedSeptember 30,2004
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    58,126
    
    
    $
    46,464Acquired allowance for loan losses
    
    
    
    
    
    
    4,028Provision for loan losses
    
    
    4,827
    
    
    
    6,644Loans charged off
    
    
    (2,876
    )
    
    
    (2,661
    )Recoveries
    
    
    113
    
    
    
    1,235Balance before reclassification
    
    
    60,190
    
    
    
    55,710Reclassification allowance for unfunded
commitments recorded to other liabilities
    
    
    (843
    )
    
    
    (426
    )Balance at end of period
    
    $
    59,347
    
    
    $
    55,284Allowance for loan losses to loans
    
    
    1.40
    %
    
    
    1.53
    %Annualized net charge-offs to average loans
    
    
    0.09
    %
    
    
    0.06
    %
 At September 30, 2004, the Company classified $6.4 million of loans as
impaired, compared with $5.0 million at December 31, 2003. Of the balance of
total impaired loans, $6.0 million and $5.0 million had a related allowance for
loan losses of $2.0 million and $2.1 million at September 30, 2004 and December
31, 2003, respectively. All impaired loans, as of September 30, 2004 and
December 31, 2003, were included in non-accrual loans. Our average recorded
investment in impaired loans for the three and nine months ended September 30,
2004 was $7.9 million and $7.6 million, respectively, and there was no related
interest income recognized on these loans during the time within the period
that they were impaired. 6. Earnings per Share The following are the basic and diluted earnings per share for the periods
then ended: Three Months Ended September 30, 2004
    
    Three Months Ended September 30, 2003Income
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    Amount(Dollars in Thousands, Except Per Share Amounts)Basic:Net income
    
    $
    21,773
    
    
    
    45,293,592
    
    
    $
    0.48
    
    
    $
    16,768
    
    
    
    44,896,592
    
    
    $
    0.37Diluted:Dilutive potential common shares.
    
    
    
    
    
    
    2,289,511
    
    
    
    
    
    
    
    
    
    
    
    2,171,994Net income and assumed conversion
    
    $
    21,773
    
    
    
    47,583,103
    
    
    $
    0.46
    
    
    $
    16,768
    
    
    
    47,068,586
    
    
    $
    0.36
 Nine months ended September 30, 2004
    
    Nine months Ended September 30, 2003Income
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    Amount(Dollars in Thousands, Except Per Share Amounts)Basic:Net income
    
    $
    61,860
    
    
    
    45,189,969
    
    
    $
    1.37
    
    
    $
    46,124
    
    
    
    43,104,602
    
    
    $
    1.07Diluted:Dilutive potential common shares.
    
    
    
    
    
    
    2,324,300
    
    
    
    
    
    
    
    
    
    
    
    2,079,712Net income and assumed conversion
    
    $
    61,860
    
    
    
    47,514,269
    
    
    $
    1.30
    
    
    $
    46,124
    
    
    
    45,184,314
    
    
    $
    1.02
 Page 10




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7. Comprehensive Income SFAS No. 130, Reporting Comprehensive Income, establishes presentation
and disclosure requirements for comprehensive income. For the Company,
comprehensive income consists of net income and the change in unrealized gains
and losses on available for sale securities. For the three months ended
September 30, 2004, total comprehensive income was $35.5 million, an increase
of $26.6 million compared to the three months ended September 30, 2003. Net
income for the three months ended September 30, 2004, was $21.8 million, and
net unrealized gains on available for sale securities increased by $13.8
million. For the corresponding period of 2003, net income was $16.8 million,
and net unrealized gains on available for sale securities decreased by $7.8
million. For the nine months ended September 30, 2004 and 2003, total comprehensive
income was $60.5 million and $36.7 million, respectively. Net income for the
nine months ended September 30, 2004, was $61.9 million, and net unrealized
losses on available for sale securities increased by $1.4 million. For the
corresponding period of 2003, net income was $46.1 million and net unrealized
losses on available for sale securities increased by $9.4 million. 8. Derivative Financial Instruments and Financial Instruments with
Off-Balance-Sheet Risk The Company is party to derivative financial instruments and financial
instruments with off-balance-sheet credit risk in the normal course of business
to meet the financing needs of its customers and to reduce its own exposure to
fluctuations in foreign currency and interest rates. The Company does not hold
or issue financial instruments for trading or speculative purposes. The Companys exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. For interest-rate
swap and cap transactions, forward commitments to sell loans and foreign
exchange contracts, the contract or notional amounts do not represent exposure
to credit loss. The Company controls the credit risk of its interest-rate swap
and cap agreements, foreign exchange contracts, and forward commitments to sell
loans, and foreign exchange contracts through credit approvals, limits, and
monitoring procedures. The Company does not require collateral or other
security to support interest-rate swap transactions with credit risk. The following table sets forth the contractual or notional amounts of
derivative financial instruments and financial instruments with
off-balance-sheet risk as of September 30, 2004 and December 31, 2003 (dollars
in thousands): At September 30,
    
    At December 31,2004
    
    2003Financial instruments whose contract amounts
represent credit risk:Commitments to extend credit:Consumer (including residential mortgage)
    
    $
    72,192
    
    
    $
    59,751Commercial (excluding construction)
    
    
    392,151
    
    
    
    279,433Construction
    
    
    251,722
    
    
    
    207,601Letters of credit
    
    
    45,566
    
    
    
    39,484Foreign exchange contracts receivable
    
    
    131,568
    
    
    
    17,121Foreign exchange contracts payable
    
    
    131,574
    
    
    
    17,122
 Page 11




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Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
The Company evaluates each customers credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on managements credit evaluation of the
counter party. Collateral held generally includes residential or commercial
real estate, accounts receivable, or other assets. Letters of credit 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 extending loan facilities to customers. These letters of credit are usually
secured by inventories or by deposits held at the Company. Foreign exchange contracts are contracts to purchase or sell currencies in
the over-the-counter market. Such contracts can be either for immediate or
forward delivery. Entering into foreign exchange contract agreements involves
the risk of dealing with counter parties and their ability to meet the terms of
the contracts. The Bank purchases or sells foreign exchange contracts in order
to hedge a balance sheet or off-balance-sheet foreign exchange position.
Additionally, the Bank purchases and sells foreign exchange contracts for
customers, as long as the foreign exchange risk is hedged with an offsetting
position. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report on Form 10-Q may include forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based upon specific assumptions that may or may
not prove correct. Forward-looking statements are also subject to known and
unknown risks, uncertainties and other factors relating to the Companys and
the Banks operations and business environment, all of which are difficult to
predict, and many of which are beyond the control of the Company and the Bank.
The factors include, among others:  
    
    economic and business conditions in the areas and markets in
which the Company and the Bank operate, particularly those affecting
commercial loans secured by real estate in California;
    
    deterioration or improvement in the ability of the Banks
borrowers to pay their debts to the Bank;
    
    market fluctuations such as those affecting interest and
foreign exchange rates and the value of securities in which the Bank
invests;
    
    competition from other financial institutions, whether banks,
investment banks, insurance companies or others;
    
    the ability of the Bank to enter new
markets and lines of business, and open new branches successfully;
    
    changes in business strategies;
    
    changes in tax law and governmental regulation of financial institutions;
    
    demographic changes; and
    
    other risks and uncertainties, including those discussed in
the documents the Company files with the Securities and Exchange
Commission (SEC). Page 12




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The foregoing may cause the actual results and performance of the Company
and the Bank to be materially different from the results and performance
indicated or suggested by the forward-looking statements. Further description of the risks and uncertainties are included in detail
in the Companys most recent Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the SEC. The following discussion and analysis is intended to provide details of
the results of operations of the Company for the three and nine months ended
September 30, 2004 and 2003, and financial condition at September 30, 2004 and
at December 31, 2003. The following discussion should be read in conjunction
with the information set forth in the Companys Consolidated Financial
Statements and notes thereto and other financial data included in this report. SUMMARY RESULTS UCBH Holdings, Inc. (we, our, and Company), operating through its
principal subsidiary, United Commercial Bank (Bank), earned $21.8 million for
the third quarter of 2004, compared to $16.8 million in the third quarter of
2003, an increase of $5.0 million, or 29.9%. Fully diluted earnings per share
for the third quarter of 2004 were $0.46 compared to $0.36 in the third quarter
of 2003. For the nine months ended September 30, 2004, we earned $61.9
million, an increase of $15.7 million or 34.1% compared to the same period in
2003. Fully diluted earnings per share for the nine months ended September 30,
2004 and 2003 were $1.30 and $1.02, respectively. As a result of our third
quarter performance, we are increasing our earnings guidance to a range of
$1.73 to $1.77 for the full year 2004. Our revenues for the three months ended September 30, 2004 consist of
approximately 84% net interest income, which represents the difference between
interest income and interest expense, and 16% noninterest income. Our revenues
for the nine months ended September 30, 2004 consist of approximately 87% net
interest income and 13% noninterest income. We generate interest income
primarily on the loans and securities that we hold in our portfolios. Interest
expense results from the interest that we pay customers on their deposits and
debt holders on our borrowings. Noninterest income results primarily from
commercial banking fees, charges on deposit accounts and gains on sales of
multifamily loans, U.S. Small Business Administration (SBA) loans and
securities. As a result of the increased earnings of the organization, our return on
average assets (ROA) increased to 1.43% and 1.41% for the three months and
nine month periods ended September 30, 2004, compared with 1.25% and 1.22%,
respectively, for corresponding periods of 2003. Our return on average equity
(ROE) was 18.97% and 18.65% for the same periods in 2004, compared to 17.96%
and 19.02%, respectively, for the corresponding periods in 2003. The decrease
in the ROE for the nine months ended September 30, 2004, compared with the same
period in 2003 reflected the net effect of the ROE reduction created by the
acquisition of First Continental Bank (FCB) for 100% stock in 2003, partially
offset by our increased earnings in 2004 compared with 2003. We anticipate
that our earnings will continue to increase for the rest of the year, which
will improve our ROA and ROE as well. Our Efficiency Ratio, which represents the ratio of total noninterest
expense to the sum of net interest income and noninterest income, increased to
41.50% for the third quarter of 2004, compared to 39.88% for the corresponding
period of the prior year. The Efficiency Ratio for the nine months ended
September 30, 2004 and 2003 was 41.16% and 41.57%, respectively. The increase
in this ratio for the three months ended September 30, 2004 compared with the
same period in 2003 was primarily due to higher personnel, professional fees
and contracted services, furniture and equipment, and occupancy expenses. The
slight improvement in this ratio for the nine months ended September 30, 2004
compared with the same period in 2003 reflected the increase in revenues. Compared to the prior periods, our interest income increased by $10.3
million and $26.7 million, or 15.5% and 13.9% for the three and nine months
ended September 30, 2004, respectively, primarily as a result of increases in
our average interest-earning assets. The average interest-earning assets
increased primarily as a result of our loan production. The increase in the
nine months ended September 30, 2004 compared to the corresponding period of
2003 also reflected our acquisition of FCB in July 2003. Our average loans
outstanding were $4.16 billion and $3.98 billion in the three and nine months ended September 30, 2004, compared
with $3.53 billion and $3.26 billion for the same period in 2003. Page 13




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As a financial institution, we are sensitive to fluctuations in market
interest rates. As a result of the decreases in market interest rates during
the first nine months of 2004, the yields on our loans and deposits have been
decreasing. Since the rate of the decrease on loan yields was not as fast as
the rate of the decrease on the cost of our deposits, our net interest margin,
calculated on a tax equivalent basis, improved from 3.44% to 3.70% for the
first nine months of 2004 when compared with the first nine months of 2003. The asset quality of the residential (one to four family) and multifamily
loan portfolios was good given low charge-offs and delinquency rates during the
three and nine months ended September 30, 2004. This good asset quality
resulted in a decrease in the loan loss provision for these portfolios in the
three and nine months ended September 30, 2004 compared with the corresponding
periods of the prior year. The effect of lower provisions necessary for
increased multifamily and residential loans was partially offset by an
increased provision resulting from the increase in the commercial real estate
and commercial business loan portfolios and increases in criticized loans. Our noninterest income increased in the third quarter of 2004 to $9.8
million from $6.5 million in the third quarter of 2003. The increase primarily
reflects the gains on sales of multifamily loans and the higher commercial
banking fees, partially offset by a decrease in net gains on sales of
securities. Noninterest income for the nine months ended September 30, 2004
and 2003 totaled $22.0 million and $16.3 million, respectively. Our noninterest expenses increased to $26.0 million and $71.7 million in
the three and nine months ended September 30, 2004, from $19.8 million and
$57.5 million for the corresponding periods of 2003. The increase for the
three months ended September 30, 2004 compared with the three months ended
September 30, 2003 was primarily due to higher personnel, professional fees and
contracted services, furniture and equipment, and occupancy expenses. The
increase for the nine months ended September 30, 2004 compared with the nine
months ended September 30, 2003 also reflected our acquisition of FCB in July
2003. TREND ANALYSIS Although we have operated in California since 1974, we operated as a
thrift until 1998. In 1998, we changed our charter to that of a commercial
bank and began operating as a commercial bank. Presented below are charts
reflecting our growth trends since becoming a commercial bank. Following are graphs reflecting our total balance sheet, loan and deposit
growth since 1998 as of the end of the specified periods: Total Assets
($Millions) (BAR CHART) Page 14




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##### Table of Contents



Gross Loans
($Millions) (BAR CHART) Total Deposits
($Millions) (BAR CHART) Core Deposits
($Millions) (BAR CHART) We have grown our balance sheet at a compounded rate of 20.0% since 1998. In 2002, we
acquired the Bank of Canton of California (BCC), with assets of $1.45 billion, which accounts
for the substantial increase in the assets that year. Similarly, in 2003, we acquired First
Continental Bank with assets of $356.7 million. Without these acquisitions, we would have grown
our balance sheet at a compounded annualized rate of 12.2% since 1998. In the future, our goal
is to grow our balance sheet organically in a range of 14% to 17% per annum. Our loan portfolio has grown at a compounded rate of 19.8% since 1998. Without the
acquisitions of BCC and FCB, the growth rate would have been 15.8%, compounded annually. Our
ongoing goal is to increase our loan portfolio by a range of 15% to 20% annually. Our deposits have grown at a compounded rate of 21.6% since 1998. Without the acquisitions
of BCC and FCB, the growth rate would have been 13.9%, compounded annually. Our core deposits
have grown at a rate of 35.5% since becoming a commercial bank. Without the acquisitions of BCC
and FCB, the growth rate would have been 30.8%, compounded annually. Through making further incursions in our Asian customer-oriented niche market and by
expanding into new market areas, management believes that it will meet the stated growth
objectives for 2004. Page 15




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Following is a table reflecting our asset quality since becoming a commercial bank as of the
end of the specified periods: September 30,1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004Charge-offs as a % of average loans
    
    
    0.05
    %
    
    
    0.07
    %
    
    
    0.02
    %
    
    
    0.00
    %
    
    
    0.23
    %
    
    
    0.06
    %
    
    
    0.13
    %Loan delinquency ratio (30 days +)
    
    
    0.78
    %
    
    
    1.12
    %
    
    
    0.75
    %
    
    
    0.64
    %
    
    
    0.88
    %
    
    
    0.86
    %
    
    
    0.72
    %Ratio of nonperforming loans to total
loans
    
    
    0.41
    %
    
    
    0.27
    %
    
    
    0.13
    %
    
    
    0.04
    %
    
    
    0.15
    %
    
    
    0.15
    %
    
    
    0.15
    %Ratio of nonperforming assets to total
assets
    
    
    0.32
    %
    
    
    0.23
    %
    
    
    0.11
    %
    
    
    0.03
    %
    
    
    0.10
    %
    
    
    0.10
    %
    
    
    0.10
    %
 We have maintained a good credit quality by adhering to our credit underwriting criteria.
Our goal is to maintain nonperforming assets to 25 basis points or less of ending assets. We
have achieved this operating performance metric for twenty-two consecutive quarters. The chart below presents selected operating metrics of the Company since becoming a
commercial bank: For theFor the year ended
    
    nine monthsendedSeptember 30,1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004Return on Average Assets
    
    
    0.60
    %
    
    
    0.87
    %
    
    
    1.02
    %
    
    
    1.12
    %
    
    
    1.14
    %
    
    
    1.26
    %
    
    
    1.41
    %Return on Average Equity
    
    
    12.52
    %
    
    
    18.00
    %
    
    
    20.12
    %
    
    
    19.58
    %
    
    
    18.42
    %
    
    
    18.84
    %
    
    
    18.65
    %Efficiency Ratio (1)
    
    
    60.32
    %
    
    
    49.74
    %
    
    
    45.70
    %
    
    
    46.79
    %
    
    
    46.94
    %
    
    
    41.83
    %
    
    
    41.16
    %Net Interest Margin (2)
    
    
    2.98
    %
    
    
    3.34
    %
    
    
    3.62
    %
    
    
    3.73
    %
    
    
    3.79
    %
    
    
    3.49
    %
    
    
    3.70
    %
  (1)
    
    Efficiency ratio represents total noninterest expense divided by the sum of net interest
income and total noninterest income.(2)
    
    Net interest margin represents net interest income divided by average interest-earning
assets and calculated on a tax equivalent basis. Our net interest margin improvement results from continuing balance sheet restructuring, as
we reduce the concentration in lower yielding loans and increase core deposits. ROA has
increased accordingly. When we acquired BCC, we blended our 4.02% margin with their 2.23%
margin. BCC had a heavy concentration of low yielding securities and high costing certificates
of deposit, which caused compression in the margin. Through restructuring the BCC assets and
deposits, we have improved our margin. Page 16




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##### Table of Contents



Capital We have increased our capital since 1998 through the retention of earnings and the issuance
of new stock in conjunction with acquisitions. The charts below present our capital level and
Tier I and Total risk-based capital ratios since 1998. As of September 30, 2004, the Bank met
the well capitalized requirements under these guidelines. Stockholders Equity
($Thousands) (BAR CHART) Tier I Leverage Ratio
(Bank Level) (BAR CHART) Total Risk-Based Ratio
(Bank Level) (BAR CHART) Page 17




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##### Table of Contents



We have declared dividends since 1999 and plan to continue dividend payments for the next
year. The chart below presents our dividend payments on a per share basis and in total since
1998. The dividends for 2004 have been annualized to be comparable with prior periods. Dividends Declared Per Share (BAR CHART) CORPORATE DEVELOPMENTS The Bank continues to expand its branch presence in key target markets during 2004. In
August 2004, the Bank opened a new branch in Westminster, California, the Banks eighteenth
branch in the Southern California region. In June 2004, the Bank opened two new branches, one
in Foster City, California and one in Torrance, California. Recently, the Bank signed leases
for two additional branches in the New York metropolitan area. During the first quarter of 2004, the Companys wholly owned subsidiary UCB Investment
Services, Inc. (UCBIS) commenced business. UCBIS is a registered broker-dealer with the
Securities and Exchange Commission and a member of the National Association of Securities
Dealers (NASD) and the Securities Investor Protection Corporation (SIPC). UCBIS acts as an
introducing broker in the sales of mutual funds, listed and over-the-counter equity securities,
and corporate, municipal, and U.S. Government debt. UCBIS also sells fixed and variable
annuities and covered options for its customers. UCBIS is registered with the Municipal
Securities Rulemaking Board (MSRB). UCBIS does not have custody or possession of customer
funds or securities. Customer accounts are carried on a fully-disclosed basis at UCBIS
clearing firm National Financial Services, LLC. CRITICAL ACCOUNTING ESTIMATES A number of critical accounting policies are used in the preparation of the Consolidated
Financial Statements, which this discussion accompanies. The Use of Estimates. The preparation of the Consolidated Financial Statements in
accordance with generally accepted accounting principles in the United States of America
(GAAP) requires management to make certain estimates and assumptions that affect the amounts of
reported assets and liabilities as well as contingent assets and liabilities as of the date of
these financial statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period(s). The Company has established detailed
policies and control procedures that are intended to ensure that valuation methods are well
controlled and applied consistently from period to period unless actual results indicate a
change in estimate is required. Allowance for Loan Losses. The allowance for loan losses covers the commercial and consumer
loan portfolios and is intended to adjust the value of the Companys loan assets for probable
credit losses inherent at a balance sheet date in accordance with GAAP. The methodology for
calculating the allowance involves significant judgment. First and foremost, it involves early
detection of credits that are deteriorating. Second, it involves managements judgment to
derive loss factors. Page 18




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##### Table of Contents



The Company uses a risk grading system to determine the credit quality of
its loans. Loans are reviewed for information affecting the obligors ability
to fulfill contractual obligations. In assessing the risk grading of a
particular loan, the factors considered include:  
    
    the borrowers debt capacity and financial flexibility  
    
    the level of earnings of the borrowers  
    
    the amount and sources of repayment  
    
    the level and nature of contingencies, management strength  
    
    the quality of the collateral, and  
    
    the industry in which the borrower operates. These factors are based on an evaluation of historical information as well
as subjective assessment and interpretation. Emphasizing one factor over
another or considering additional factors that may be relevant in determining
the risk grading of a particular loan, but which are not currently an explicit
part of the Companys methodology, could affect the risk grade assigned to that
loan. Management also applies judgment to derive loss factors associated with
each credit facility. These loss factors are considered by type of obligor and
collateral. Whenever possible, the Company uses its own historical loss
experience or independent verifiable data to estimate the loss factors. Many
factors can affect managements estimates of a loss factor. The application of
different loss factors would change the amount of the allowance for credit
losses determined to be appropriate by the Company. Given the process the
Company follows in determining the risk grading of its loans, management
believes the current risk gradings and loss factors assigned to loans are
appropriate. Managements judgment is also applied when considering uncertainties based
on current macroeconomic conditions and other factors. For example, judgment
as to the economic outlook in California will affect managements assessment of
probable losses based on exposure to that marketplace. Notwithstanding the
judgment required in assessing the allowance for loan losses, the Company
believes its estimate for the allowance for loan losses is adequate at the
balance sheet date. In the second quarter of 2004, we reclassified
approximately $3.1 million of the allowance for loan losses to other
liabilities. This reclassification represents allocated loss allowances for
unfunded loan commitments and off-balance-sheet commitments for letters of
credit. Such reclassification is also reflected in the financial statements as
of September 30, 2004 and the Company will continue to report the allowance for
unfunded loan and off-balance-sheet commitments in other liabilities. As of
September 30, 2004, the allocated loss allowance for unfunded loan commitments
and off-balance-sheet commitments increased to $3.6 million. For comparison
purposes, $2.8 million of the allowance for loan losses associated with
unfunded loan commitments and off-balance-sheet commitments as of December 31,
2003 was also reclassified. Fair Value of Certain Assets.Certain assets of the Company are recorded
at fair value. In some cases, the fair value used is an estimate. Included
among these assets are securities that are classified as available for sale,
goodwill and other intangible assets, other real estate owned and impaired
loans. These estimates may change from period to period as they are affected
by changes in interest rates and other market conditions. If the Company were
to sell one of these assets and then discover that its estimate of fair value
had been too high, losses not anticipated or greater than anticipated could
result. Gains not anticipated or greater than anticipated could result if the
Company were to sell one of these assets, subsequently discovering that its
estimate of fair value had been too low. The Company arrives at estimates of
fair value as follows: Available for Sale Securities.The fair values of most securities
classified as available for sale are based on quoted market prices. If quoted
market prices are not available, fair values are extrapolated from the quoted
prices of similar instruments. Page 19




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##### Table of Contents



Goodwill and Other Intangible Assets.The Company establishes goodwill
and other intangible assets including core deposit intangibles and capitalized
servicing rights by estimating fair value of assets and liabilities acquired
using various valuation approaches, such as market value, replacement costs and
estimated cash flows for future periods. Additionally, the Company must assess
goodwill each year and other intangible assets each quarter for impairment.
This assessment involves reviewing or revising estimated cash flows for future
periods. If the future cash flows are materially less than the estimates, the
Company would be required to take a charge against earnings to write down the
asset to the lower fair value. Mortgage servicing rights result from the sale of multifamily loans and
SBA loans with the servicing rights retained, and the securitization and
retention of 1-4 single-family and multifamily loans with the servicing rights
retained. The market value for servicing is based upon the coupon rates,
maturity, and prepayment rates experienced for the mortgages being serviced.
The value of mortgage servicing rights is based upon managements best estimate
of the market value based upon discounted cash flows. Income Taxes.The provision for income taxes is based on income reported
for financial statement purposes and differs from the amount of taxes currently
payable, since certain income and expense items are reported for financial
statement purposes in different periods than those for tax reporting purposes. The Company accounts for income taxes using the asset and liability
approach, the objective of which is to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting basis
and the tax basis of the Companys assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled. A
valuation allowance is established for deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The valuation allowance
reduces the deferred tax assets to the amount that is more likely than not to
be realized. Alternative Methods of Accounting.The accounting and reporting policies
of the Company are in accordance with GAAP and conform to practices within the
banking industry. When the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation in 1996, it elected
to continue to use the method of accounting for stock options that did not
recognize compensation expense at the time options were granted. As required
by SFAS No. 123, pro forma amounts of compensation expense and the pro forma
effect on net income and earnings per share are disclosed each quarter as if
the Company had instead elected to use the accounting method that recognizes
compensation expense. The Company adopted SFAS No. 148 Accounting for
Stock-Based Compensation - Transition and Disclosure during 2003. The pro
forma amounts of compensation expense and the pro forma effect on net income
and earnings per share are disclosed in Note 2 to the Consolidated Financial
Statements using the Black-Scholes model for pricing options. Had the Company
elected to adopt the SFAS No. 123 fair value based method of accounting instead
of pro forma disclosure, additional compensation expense would have been
recognized. RESULTS OF OPERATIONS General. The Companys primary source of income is net interest income,
which is the difference between interest income from interest-earning assets,
such as loans and securities, and interest paid on interest-bearing
liabilities, such as deposits and other borrowings used to fund those assets.
The Companys net interest income is affected by changes in the volume of
interest-earning assets and interest-bearing liabilities as well as by changes
in yields earned on interest-earning assets and rates paid on interest-bearing
deposits and other borrowed funds. The Company also generates noninterest
income, including commercial banking fees, gain on sale of U.S. Small Business
Administration (SBA) loans, gain on sale of securities, gain on sale of loans
and other transactional fees. The Companys source of noninterest income
derives predominantly from commercial banking fees plus any gains on sale of
loans and securities. The Companys noninterest expenses consist primarily of
personnel, occupancy, professional fees, and other operating expenses. The
Companys results of operations are affected by its provision for loan losses
and may also be significantly affected by other factors including general
economic and competitive conditions, changes in market interest rates,
governmental policies and the actions of regulatory agencies. Page 20




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##### Table of Contents



Operating Data and Ratios Following is a table of selected operating metrics for the quarters ended
September 30, 2004 and 2003: For the Three Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $/Basis Points
    
    %(Dollars in Thousands)Net Income
    
    $
    21,773
    
    
    $
    16,768
    
    
    $
    5,005
    
    
    
    29.85
    %Diluted Earnings per Share
    
    $
    0.46
    
    
    $
    0.36
    
    
    $
    0.10
    
    
    
    27.78
    %Return on Average Assets
    
    
    1.43
    %
    
    
    1.25
    %
    
    
    18
    bp
    
    
    14.40
    %Return on Average Equity
    
    
    18.97
    %
    
    
    17.96
    %
    
    
    101
    bp
    
    
    5.62
    %Efficiency Ratio
    
    
    41.50
    %
    
    
    39.88
    %
    
    
    162
    bp
    
    
    4.06
    %
 The consolidated net income of the Company during the three months ended
September 30, 2004 increased by $5.0 million compared with the corresponding
period of the preceding year. The increase in net income was primarily due to
an increase in net interest income, which was partially offset by an increase
in noninterest expense, during the current period as compared to the
corresponding period in the prior year. The annualized return on average assets (ROA) ratio and the annualized
return on average equity (ROE) for the three months ended September 30, 2004
improved primarily due to higher net interest income. Following is a table of selected operating metrics for the nine-month
periods ended September 30, 2004 and 2003: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $/Basis Points
    
    %(Dollars in Thousands)Net Income
    
    $
    61,860
    
    
    $
    46,124
    
    
    $
    15,736
    
    
    
    34.12
    %Diluted Earnings per Share
    
    $
    1.30
    
    
    $
    1.02
    
    
    $
    0.28
    
    
    
    27.45
    %Return on Average Assets
    
    
    1.41
    %
    
    
    1.22
    %
    
    
    19
    bp
    
    
    15.57
    %Return on Average Equity
    
    
    18.65
    %
    
    
    19.02
    %
    
    
    (37
    ) bp
    
    
    (1.95
    %)Efficiency Ratio
    
    
    41.16
    %
    
    
    41.57
    %
    
    
    (41
    ) bp
    
    
    (0.99
    %)
 The consolidated net income of the Company during the nine months ended
September 30, 2004 increased by $15.7 million, or 34.1%, to $61.9 million,
compared to $46.1 million for the corresponding period of the preceding year,
primarily as a result of the increase in interest-earning assets. The ROA for the nine months ended September 30, 2004 improved primarily
due to higher net income. The ROE decreased for the nine months ended
September 30, 2004 compared to the corresponding period in the prior year due
to the Companys purchase of FCB for 100% stock. Page 21




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##### Table of Contents



Net Interest Income. Following is a table of selected ratios that reflect
the dynamics of the net interest income for the Company for the three-month
periods ending September 30, 2004 and 2003: For the Three Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $/Basis Points
    
    %(Dollars in Thousands)Net interest income before
provision for loan losses
    
    $
    52,798
    
    
    $
    43,072
    
    
    $
    9,726
    
    
    
    22.58
    %Net interest margin (1)
    
    
    3.70
    %
    
    
    3.43
    %
    
    
    27
    bp
    
    
    7.87
    %Average yield on loans
    
    
    5.49
    %
    
    
    5.66
    %
    
    
    (17
    )bp
    
    
    (3.00
    %)Average yield on securities
    
    
    4.63
    %
    
    
    4.14
    %
    
    
    49
    bp
    
    
    11.84
    %Average cost of deposits
    
    
    1.39
    %
    
    
    1.57
    %
    
    
    (18
    )bp
    
    
    (11.46
    %)Average cost of borrowings
    
    
    3.35
    %
    
    
    4.72
    %
    
    
    (137
    )bp
    
    
    (29.03
    %)
  (1) Calculated on a tax equivalent basis. Net interest income before provision for loan losses increased $9.7
million for the three months ended September 30, 2004 compared to the
corresponding quarter in the prior year. The increase in net interest income
reflects the growth in interest-earning assets, primarily in the Companys loan
portfolio, coupled with a 27 basis point improvement in the net interest
margin. The average cost of deposits decreased 18 basis points from the three
months ended September 30, 2003 to the three months ended September 30, 2004.
This savings was partially offset by a 17 basis point decrease in average loan
yields from the three-month period ended September 30, 2003 to the comparable
period in 2004. The decreases in these areas reflect the decline in the
overall market interest rate environment from the prior year. The decrease in
loan yields reflects repricing of adjustable-rate loans resulting from
reductions in market interest rate indices, and the impact of accelerated
prepayments on higher-yielding loans due to the lower market interest rates. The average yield on securities increased 49 basis points from the three
months ended September 30, 2003 to the three months ended September 30, 2004.
Premium as a percentage of the outstanding balance on the securities portfolio
declined substantially between September 30, 2003 and September 30, 2004,
resulting in less premium amortization in the third quarter of 2004 as compared
with the third quarter of 2003. In the second quarter of 2003, the Company
began to sell premium securities and replace them with bonds that were
discounted or close to par. This restructuring of the securities portfolio was
completed in the second quarter of 2004. Additionally, in the third quarter of
2003, amortization of premium increased as a result of accelerated prepayments
caused by the sharp decline in the general level of market interest rates. Page 22




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##### Table of Contents



Following is a table of selected ratios that reflect the dynamics of the
net interest income for the Company for the nine-month periods ending September
30, 2004 and 2003: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $/Basis Points
    
    %(Dollars in Thousands)Net interest income before
provision for loan losses
    
    $
    152,252
    
    
    $
    122,002
    
    
    $
    30,250
    
    
    
    24.79
    %Net interest margin (1)
    
    
    3.70
    %
    
    
    3.44
    %
    

    26
    bp
    
    
    7.56
    %Average yield on loans
    
    
    5.45
    %
    
    
    5.72
    %
    

    (27
)bp
    
    
    (4.72
    %)Average yield on securities
    
    
    4.54
    %
    
    
    4.44
    %
    

    10
bp
    
    
    2.25
    %Average cost of deposits
    
    
    1.34
    %
    
    
    1.69
    %
    

    (35
)bp
    
    
    (23.34
    %)Average cost of borrowings
    
    
    3.48
    %
    
    
    4.46
    %
    

    (98
)bp
    
    
    (21.97
    %)
  (1) Calculated on a tax equivalent basis. Net interest income before provision for loan losses increased $30.3
million for the nine months ended September 30, 2004 compared to the
corresponding period in the prior year. The increase in net interest income
reflects the growth in interest-earning assets, primarily in the Companys loan
portfolio, coupled with a 26 basis point improvement in the net interest
margin. The average cost of deposits decreased 35 basis points from the
nine-month period ended September 30, 2003 to the corresponding period in 2004.
This savings was partially offset by a 27 basis point decrease in average loan
yields from the nine months ended September 30, 2003 to the corresponding
period in 2004. The decrease in loan yields and the deposit cost reflects the
decline in the overall market interest rate environment from the prior year.
The decrease in loan yields reflects repricing of adjustable-rate loans
resulting from reductions in market interest rate indices, as well as the
impact of accelerated prepayments on higher-yielding loans due to the lower
market interest rates. The average yield on securities increased 10 basis points from the nine
months ended September 30, 2003 to the nine months ended September 30, 2004.
Premium as a percentage of the outstanding balance on the securities portfolio
declined substantially between September 30, 2003 and September 30, 2004. In
the second quarter of 2003, the Company began to sell premium securities and
replace them with bonds that were discounted or close to par. This
restructuring of the securities portfolio was completed in the second quarter
of 2004. Additionally, in the third quarter of 2003, amortization of premium
increased as a result of accelerated prepayments caused by the sharp decline in
the general level of market interest rates. The effect of the aforementioned
factors was partially offset by the higher average yield on securities in the
first quarter of 2003 compared with the same period in 2004, reflecting the
decline in market interest rates subsequent to the first quarter of 2003. The net interest margin, calculated on a tax equivalent basis, was 3.70%
for the nine months ended September 30, 2004, as compared to 3.44% for the
corresponding period of 2003. Certain interest-earning assets of the Company
qualify for state or federal tax exemptions or credits. The net interest
margin, calculated on a tax equivalent basis, considers the tax benefit derived
from these assets. The increase in the net interest margin reflects the
favorable impact of increasing loan yields while decreasing the cost of
deposits. Page 23




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##### Table of Contents



Following is a table reflecting selected average balances of the Companys
assets and liabilities for the nine-month periods ended September 30, 2004 and
2003: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in Thousands)Average interest-earning assets
    
    $
    5,632,883
    
    
    $
    4,832,809
    
    
    $
    800,074
    
    
    
    16.56
    %Average interest-bearing liabilities
    
    
    4,994,366
    
    
    
    4,368,546
    
    
    
    625,820
    
    
    
    14.33
    %Average loans outstanding
    
    
    3,980,799
    
    
    
    3,260,818
    
    
    
    719,981
    
    
    
    22.08
    %Average securities outstanding
    
    
    1,636,933
    
    
    
    1,559,367
    
    
    
    77,566
    
    
    
    4.97
    %Average outstanding deposits
    
    
    4,735,263
    
    
    
    4,186,957
    
    
    
    548,306
    
    
    
    13.10
    %Average outstanding borrowings
    
    
    486,205
    
    
    
    326,933
    
    
    
    159,272
    
    
    
    48.72
    %
 The following table presents the composition of the Banks average loan
portfolio at the dates indicated: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in Thousands)Average commercial loans
    
    $
    3,600,699
    
    
    $
    2,908,975
    
    
    $
    691,724
    
    
    
    23.78
    %Average consumer loans
    
    
    380,100
    
    
    
    351,843
    
    
    
    28,257
    
    
    
    8.03
    %Average gross loans
    
    $
    3,980,799
    
    
    $
    3,260,818
    
    
    $
    719,981
    
    
    
    22.08
    %
 The following table presents components of the Banks average outstanding
deposits at the dates indicated: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in Thousands)Average non-interest bearing deposits
    
    $
    363,102
    
    
    $
    281,344
    
    
    $
    81,758
    
    
    
    29.06
    %Average interest bearing deposits
    
    
    4,372,161
    
    
    
    3,905,613
    
    
    
    466,548
    
    
    
    11.95
    %Total average outstanding deposits
    
    $
    4,735,263
    
    
    $
    4,186,957
    
    
    $
    548,306
    
    
    
    13.10
    %
 The increase of $800.1 million on average earning assets for the nine
months ended September 30, 2004 resulted primarily from organic commercial loan
growth. Average outstanding loans increased by $720.0 million for the nine
months ended September 30, 2004 from the same period last year as a result of
the Banks continued focus on commercial lending activities. Average
commercial loan balances increased $691.7 million for the nine months ended
September 30, 2004 as compared to the corresponding period of 2003. This
increase is primarily due to the Banks continued emphasis on commercial real
estate and commercial business loans, and expansion of its Hong Kong branch.
Average consumer loans for the nine months ended September 30, 2004 and 2003
remained relatively constant at $380.1 million and $351.8 million. New loan
commitments of $1.92 billion for the nine months ended September 30, 2004 were
comprised of $1.70 billion in commercial and $221.3 million in consumer
commitments. As of September 30, 2004 the loan pipeline approximated $1.38
billion, which was comprised of $1.35 billion for commercial loans and $37.7
million of consumer loans. Average securities increased $77.6 million for the nine months ended
September 30, 2004. This increase was primarily due to internal
securitizations during the year as well as purchases that occurred early.
Securities prepayments, which accelerated with the lower market interest rate
environment, were substantially replaced with new securities purchases. During
the first nine months of 2004, the Company also sold securities with an
aggregate principal balance of $600.9 million. Such securities were sold to
protect the Company from both accelerating prepayments and from increases in
market interest rates. The Companys restructuring strategy was to replace
securities that have high prepayment and extension risk with shorter-dated
securities with less prepayment and extension risk. Page 24




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##### Table of Contents



Average outstanding deposits increased $548.3 million for the nine months
ended September 30, 2004 compared to the corresponding period of 2003. This
increase is a result of the Companys ongoing focus on the generation of
commercial and consumer demand deposits. Average interest-bearing and average
noninterest bearing deposits increased $466.5 million and $81.8 million,
respectively, for the nine months ended September 30, 2004 compared to the
corresponding period in 2003. The following table presents condensed average balance sheet information
for the Company, together with interest rates earned and paid on the various
sources and uses of funds for each of the periods indicated: For the Nine Months Ended
    
    For the Nine Months EndedSeptember 30, 2004
    
    September 30, 2003(Dollars in Thousands)Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    
    
    
    Income or
    
    Average
    
    Average
    
    
    
    
    
    Income or
    
    AverageBalance
    
    
    
    
    
    Expense
    
    Yield/Cost
    
    Balance
    
    
    
    
    
    Expense
    
    Yield/CostInterest-earning assets:Loans (1)
    
    $
    3,980,799
    
    
    
    
    
    
    $
    162,597
    
    
    
    5.45
    %
    
    $
    3,260,818
    
    
    
    
    
    
    $
    139,833
    
    
    
    5.72
    %Securities
    
    
    1,636,933
    
    
    
    
    
    
    
    55,680
    
    
    
    4.54
    
    
    
    1,559,367
    
    
    
    
    
    
    
    51,947
    
    
    
    4.44Other
    
    
    15,151
    
    
    
    
    
    
    
    223
    
    
    
    1.97
    
    
    
    12,624
    
    
    
    
    
    
    
    62
    
    
    
    0.65Total interest-earning assets
    
    
    5,632,883
    
    
    
    
    
    
    
    218,500
    
    
    
    5.17
    
    
    
    4,832,809
    
    
    
    
    
    
    
    191,842
    
    
    
    5.29Noninterest-earning assets
    
    
    214,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,028
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    5,847,815
    
    
    
    
    
    
    $
    218,500
    
    
    
    4.98
    %
    
    $
    5,034,837
    
    
    
    
    
    
    $
    191,842
    
    
    
    5.08
    %Interest-bearing liabilities:Deposits:NOW, checking, and money market accounts
    
    $
    797,965
    
    
    
    
    
    
    $
    6,272
    
    
    
    1.05
    %
    
    $
    603,953
    
    
    
    
    
    
    $
    5,145
    
    
    
    1.14
    %Savings accounts
    
    
    905,092
    
    
    
    
    
    
    
    5,873
    
    
    
    0.87
    
    
    
    755,765
    
    
    
    
    
    
    
    5,366
    
    
    
    0.95Time deposits
    
    
    2,669,104
    
    
    
    
    
    
    
    35,420
    
    
    
    1.77
    
    
    
    2,545,895
    
    
    
    
    
    
    
    42,424
    
    
    
    2.22Total interest bearing deposits
    
    
    4,372,161
    
    
    
    
    
    
    
    47,565
    
    
    
    1.45
    
    
    
    3,905,613
    
    
    
    
    
    
    
    52,935
    
    
    
    1.81Borrowings
    
    
    486,205
    
    
    
    
    
    
    
    12,698
    
    
    
    3.48
    
    
    
    326,933
    
    
    
    
    
    
    
    10,946
    
    
    
    4.46Guaranteed preferred beneficial interests in
junior subordinated debentures
    
    
    136,000
    
    
    
    
    
    
    
    5,985
    
    
    
    5.87
    
    
    
    136,000
    
    
    
    
    
    
    
    5,959
    
    
    
    5.84Total interest-bearing liabilities
    
    
    4,994,366
    
    
    
    
    
    
    
    66,248
    
    
    
    1.77
    %
    
    
    4,368,546
    
    
    
    
    
    
    
    69,840
    
    
    
    2.13
    %Noninterest-bearing deposits
    
    
    363,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281,344Other noninterest-bearing liabilities
    
    
    48,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,549Stockholders equity
    
    
    442,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323,398Total liabilities and stockholders equity
    
    
    5,847,815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,034,837Net interest income/net interest rate spread(2)(3)
    
    
    
    
    
    
    
    
    
    $
    152,252
    
    
    
    3.40
    %
    
    
    
    
    
    
    
    
    
    $
    122,002
    
    
    
    3.16
    %Net interest-earning assets/net interest margin(3)(4)
    
    $
    638,516
    
    
    
    
    
    
    
    
    
    
    
    3.60
    %
    
    $
    464,263
    
    
    
    
    
    
    
    
    
    
    
    3.37
    %Ratio of interest-earning assets to interest-bearing
Liabilities
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.11
    x
  (1) Nonaccrual loans are included in the table for computation purposes, but
the foregoing interest on such loans is excluded.  (2) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.  (3) Calculated on a nontax equivalent basis.  (4) Net interest margin represents net interest income divided by average
interest-earning assets. Page 25




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##### Table of Contents



Provision for Loan Losses. The Company uses a methodology in accordance
with GAAP to calculate the allowance for loan losses. This methodology
involves significant judgment. See the Critical Accounting Estimates section
under this Item for a discussion on the methodology. Through application of
this methodology, which takes into account the loan portfolio mix, credit
quality, loan growth, the amount and trends relating to the Companys
delinquent and nonperforming loans, regulatory policies, general economic
conditions and other factors relating to the collectibility of loans in the
portfolio, management determines the appropriateness of the allowance for loan
losses, which is adjusted by quarterly provisions charged against earnings. For the three months ended September 30, 2004, our provision for loan
losses was $1.6 million, a decrease of $1.2 million, compared to a provision of
$2.8 million for the corresponding period of 2003. For the nine months ended
September 30, 2004, our provision for loan losses was $4.8 million, a decrease
of $1.8 million, compared to a provision of $6.6 million for the corresponding
period of 2003. The asset quality of the residential (one to four family) and
multifamily loan portfolios was good during the three and nine months ended
September 30, 2004. This good asset quality resulted in a decrease in the loan
loss provision for these portfolios in the three and nine months ended
September 30, 2004 compared with the corresponding periods of the prior year.
The effect of lower provisions necessary for increased multifamily and
residential loans was partially offset by an increased provision resulting from
the increase in the commercial real estate and commercial business loan
portfolios and increases in criticized loans. The decreases in the provision for loan losses for the specified periods
above resulted from the following factors:  
    
    Loan Growth and Portfolio Composition: Our overall loan portfolio grew $433.7 million from December 31, 2003 to
September 30, 2004, primarily as a result of the Banks continued focus
on commercial lending activities. Loan growth remained concentrated in
the Banks commercial portfolio. Although loan growth remained concentrated in the commercial loan
portfolio, the multifamily segment of the commercial commitments achieved
the strongest growth rate. The multifamily loan commitments increased by
19.7% and 29.4% in the three and nine months ended September 30, 2004
from the corresponding periods of 2003, respectively. Multifamily loans
grew at an annualized rate of 14.3% during the first nine months of 2004. While residential mortgage loans decreased by 16.4% in the third quarter
of 2004, compared with the third quarter of 2003, commitments on this
portfolio increased substantially from December 31, 2003 to September 30,
2004. For the nine months ended September 30, 2004, residential
commitments increased by 35.0% compared with the corresponding period of
2003. Residential loans grew at an annualized rate of 67.3% during the
first nine months of 2004. Commercial real estate commitments increased by 29.3% in the quarter
ended September 30, 2004, compared with the corresponding period of the
prior year. For the nine months ended September 30, 2004, commercial
real estate commitments increased by 20.5%. Commercial real estate loans
increased at an annualized rate of 6.7% during the first nine months of
2004. During the third quarter of 2004, outstanding construction commitments
increased 27.8% compared to the corresponding period of the prior year.
For the first nine months of 2004, outstanding construction commitments
increased 23.6% compared to the first nine months of 2003.  
    
    Asset Quality:The asset quality of the residential (one to four
family) and multifamily loan portfolios was good given low charge-offs
and delinquency rates during the three and nine months ended September
30, 2004. This good asset quality resulted in a decrease in the
provision for these portfolios. Criticized loans, which are defined as
those we classify as risk-graded Special Mention, Substandard,
Doubtful, or Loss, were 2.13% and 1.64% of total loans at September 30,
2004 and December 31, 2003, respectively. Nonaccrual loans increased
from $5.9 million at December 31, 2003, to $6.4 million at September
30, 2004. The increase reflects one new commercial real estate loan that was placed on
nonaccrual during the second quarter of 2004. Page 26




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##### Table of Contents




    
    Net Charge-offs.Net charge-offs of $2.8 million for the nine
months ended September 30, 2004, increased as compared to net
charge-offs of $1.4 million for the corresponding period of 2003. The
charge-offs in the nine months ended September 30, 2004 and 2003 are
related primarily to commercial business lending.  
    
    Management Judgment:To derive the provision for loan losses during
the three and nine months ended September 30, 2004, judgment is applied
when considering uncertainties based on current macroeconomic
conditions and other factors. For example, judgment as to the economic
outlook in California will affect managements assessment of potential
losses based on exposure to that marketplace. In the quarter ended June 30, 2004, the Company reclassified approximately
$3.1 million from the allowance for loan losses related to unfunded commitments
and off-balance-sheet commitments for letters of credit to other liabilities.
The reclassification reduced the June 30, 2004 allowance from $62.6 million, or
1.55% of loans to $59.5 million, or 1.47% of loans. As of September 30, 2004,
the associated allowance balance in other liabilities was $3.6 million. For
comparison purposes, we reclassified $2.8 million of the December 31, 2003
allowance for loan losses balance, resulting in the reduction from $60.9
million or 1.61% of loans, to $58.1 million or 1.53% of loans. Noninterest Income The following table presents the composition of noninterest income for the
periods indicated: For the Three Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in thousands)Commercial banking and other fees
    
    $
    2,700
    
    
    $
    1,775
    
    
    $
    925
    
    
    
    52.11
    %Service charges on deposit accounts
    
    
    632
    
    
    
    515
    
    
    
    117
    
    
    
    22.72
    %Gain on sale of securities, net
    
    
    2,566
    
    
    
    3,050
    
    
    
    (484
    )
    
    
    (15.87
    %)Gain on sale of multifamily loans
    
    
    2,951
    
    
    
    
    
    
    
    2,951
    
    
    
    100.00
    %Gain on sale of SBA loans, net
    
    
    1,115
    
    
    
    1,229
    
    
    
    (114
    )
    
    
    (9.28
    %)Equity loss in other equity investments
    
    
    (158
    )
    
    
    (38
    )
    
    
    (120
    )
    
    
    (315.79
    %)Total noninterest income
    
    $
    9,806
    
    
    $
    6,531
    
    
    $
    3,275
    
    
    
    50.15
    %
 Noninterest income for the three months ended September 30, 2004 increased
$3.3 million compared to the corresponding period of 2003 primarily as a result
of increased gains on sales of multifamily loans and higher commercial banking
fees, partially offset by decreases in gains on sales of securities. Gains on sales of multifamily loans were $3.0 million for the third
quarter. There were no gains on sales of multifamily loans in the
corresponding quarter of 2003. Net gains on sale of U.S. Small Business
Administration (SBA) loans totaled $1.1 million for the three months ended
September 30, 2004, compared to $1.2 million for the corresponding period in
2003. Commercial banking and other fees increased $925,000 for the three
months ended September 30, 2004, compared to the corresponding period of 2003.
This is a result of increased commercial banking activities, primarily in trade
finance business. Net gains recognized on sales of securities decreased
$484,000 for the three months ended September 30, 2004 to $2.6 million,
compared to $3.1 million in the corresponding quarter of 2003. Page 27




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##### Table of Contents



The following table presents the composition of noninterest income for the
periods indicated: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in thousands)Commercial banking and other fees
    
    $
    6,726
    
    
    $
    5,168
    
    
    $
    1,558
    
    
    
    30.15
    %Service charges on deposit accounts
    
    
    1,963
    
    
    
    1,657
    
    
    
    306
    
    
    
    18.47
    %Gain on sale of securities, net
    
    
    9,059
    
    
    
    7,866
    
    
    
    1,193
    
    
    
    15.17
    %Gain on sale of multifamily loans
    
    
    2,951
    
    
    
    
    
    
    
    2,951
    
    
    
    100.00
    %Gain on sale of SBA loans, net
    
    
    2,997
    
    
    
    1,746
    
    
    
    1,251
    
    
    
    71.65
    %Equity loss in other equity investments
    
    
    (1,647
    )
    
    
    (114
    )
    
    
    (1,533
    )
    
    
    N/MTotal noninterest income
    
    $
    22,049
    
    
    $
    16,323
    
    
    $
    5,726
    
    
    
    35.08
    %
 Noninterest income for the nine months ended September 30, 2004 increased
$5.7 million compared to the corresponding period of 2003. This increase
primarily resulted from increases in the net gains from sales of loans and
securities, commercial banking and other fees, partially offset by an equity
loss in other equity investments. Net gains on sales of loans increased by
$4.2 million for the nine months ended September 30, 2004 compared to the
corresponding period in 2003 as a result of sales of SBA and multifamily loans.
Net gains recognized on sales of securities increased by $1.2 million for the
nine months ended September 30, 2004 compared to the corresponding period of
2003. The Company recognized $1.6 million of equity losses from CRA related
investments during the nine months ended September 30, 2004 compared to the
corresponding period of 2003 primarily as a result of the recognition of our
share of equity losses on CRA-related investments. As disclosed in Note 1 to
the financial statements, the Company invests in CRA qualified investments.
Such investments have increased in order to meet requirements under the
Community Reinvestment Act. The above $1.6 million is our share of the
underlying investment equity losses exclusive of tax benefits and credits. Noninterest Expense The following table presents the composition of noninterest expense during
the periods indicated: For the Three Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in Thousands)Personnel
    
    $
    13,533
    
    
    $
    10,133
    
    
    $
    3,400
    
    
    
    33.55
    %Occupancy
    
    
    2,326
    
    
    
    1,747
    
    
    
    579
    
    
    
    33.14
    %Data processing
    
    
    1,656
    
    
    
    1,453
    
    
    
    203
    
    
    
    13.97
    %Furniture and equipment
    
    
    1,647
    
    
    
    1,012
    
    
    
    635
    
    
    
    62.75
    %Professional fees and contracted
services
    
    
    1,856
    
    
    
    1,198
    
    
    
    658
    
    
    
    54.92
    %Deposit insurance
    
    
    187
    
    
    
    185
    
    
    
    2
    
    
    
    1.08
    %Communication
    
    
    320
    
    
    
    285
    
    
    
    35
    
    
    
    12.28
    %Core deposit intangible amortization
    
    
    285
    
    
    
    185
    
    
    
    100
    
    
    
    54.05
    %Miscellaneous expense
    
    
    4,170
    
    
    
    3,585
    
    
    
    585
    
    
    
    16.32
    %Total noninterest expense
    
    $
    25,980
    
    
    $
    19,783
    
    
    $
    6,197
    
    
    
    31.32
    %
 Page 28




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##### Table of Contents



Noninterest expense increased $6.2 million for the three months ended
September 30, 2004, as compared with the corresponding period of 2003 primarily
due to higher personnel, professional fees and contracted services, furniture
and equipment, and occupancy expenses. Personnel expenses increased $3.4
million for the three months ended September 30, 2004, compared to the
corresponding period of 2003, as a result of additional staffing required to
support the growth of the Banks commercial banking business, the expansion of
the Hong Kong and California branches, and the expansion of the Banks
infrastructure to support a larger and growing organization. Professional fees
and contracted services increased by 54.9% for the third quarter of 2004,
compared to the corresponding quarter in 2003 predominately as a result of
Sarbanes-Oxley related preparation costs. Furniture and equipment increased by
62.8% and occupancy expenses increased by 33.1% for the third quarter of 2004,
compared to the corresponding quarter in 2003 reflecting primarily the opening
of the Foster City, Torrance and Westminster branches and the expansion of the
Hong Kong branch and the Companys corporate headquarters relocation. Core
deposit intangible amortization was $285,000 for the three months ended
September 30, 2004, compared with $185,000 for the corresponding period of
2003. The increase in miscellaneous expenses of $585,000 for the three months
ended September 30, 2004, compared with the corresponding period of 2003 was
primarily related to the Companys continued expansion, corporate headquarters
relocation and advertising costs. The following table presents the composition of noninterest expense during
the periods indicated: For the Nine Months EndedSeptember 30,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in Thousands)Personnel
    
    $
    38,144
    
    
    $
    30,506
    
    
    $
    7,638
    
    
    
    25.04
    %Occupancy
    
    
    6,050
    
    
    
    4,273
    
    
    
    1,777
    
    
    
    41.59
    %Data processing
    
    
    4,351
    
    
    
    3,659
    
    
    
    692
    
    
    
    18.91
    %Furniture and equipment
    
    
    4,062
    
    
    
    2,548
    
    
    
    1,514
    
    
    
    59.42
    %Professional fees and contracted
services
    
    
    4,980
    
    
    
    4,305
    
    
    
    675
    
    
    
    15.68
    %Deposit insurance
    
    
    589
    
    
    
    511
    
    
    
    78
    
    
    
    15.26
    %Communication
    
    
    934
    
    
    
    757
    
    
    
    177
    
    
    
    23.38
    %Core deposit intangible amortization
    
    
    1,000
    
    
    
    1,318
    
    
    
    (318
    )
    
    
    (24.13
    )%Miscellaneous expense
    
    
    11,637
    
    
    
    9,618
    
    
    
    2,019
    
    
    
    20.99
    %Total noninterest expense
    
    $
    71,747
    
    
    $
    57,495
    
    
    $
    14,252
    
    
    
    24.79
    %
 Noninterest expense increased $14.3 million for the nine months ended
September 30, 2004, as compared to the corresponding period of 2003 primarily
due to the increase in personnel, occupancy, furniture and equipment and
miscellaneous expenses as explained above, as well as the FCB acquisition. Provision for Income Taxes. The provision for income taxes was $13.2
million and $10.2 million on the income before taxes of $35.0 million and $27.0
million for the three months ended September 30, 2004 and 2003, respectively.
The provision for income taxes was $35.9 million and $28.1 million on the
income before taxes of $97.7 million and $74.2 million for the nine months
ended September 30, 2004 and 2003, respectively. The effective tax rate for
the quarter ended September 30, 2004, was 37.76%, compared with 37.90% for the
three months ended September 30, 2003. The effective tax rate for the nine
months ended September 30, 2004, was 36.70%, compared with 37.83% for the
corresponding period in 2003. These rates are lower than the combined federal
and state statutory rate of 42% primarily due to federal and state tax credits
and incentives, tax-exempt income and an increase in CRA tax credits. The
American Job Creation Act of 2004 (AJCA), which was signed by the
President of the United States of America on October 22, 2004 allows
the Company, upon satisfaction of
certain conditions, to repatriate permanently reinvested foreign
earnings at an effective tax rate of 5.25%. The Company has not  yet
completed the analysis necessary to determine whether to take
advantage of this opportunity. Page 29




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##### Table of Contents



FINANCIAL CONDITION The following table outlines the Companys securities, loans and total
assets at the dates indicated: At September 30,
    
    At December 31,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in thousands)Total loans
    
    $
    4,225,293
    
    
    $
    3,791,643
    
    
    $
    433,650
    
    
    
    11.44
    %Securities
    
    $
    1,540,789
    
    
    $
    1,505,782
    
    
    $
    35,007
    
    
    
    2.32
    %Total assets
    
    $
    6,120,317
    
    
    $
    5,587,927
    
    
    $
    532,390
    
    
    
    9.53
    %
 During the nine months ended September 30, 2004, total loans increased by
$433.7 million. This growth resulted from an organic increase in commercial
loans resulting from the Banks continuing focus on originating such loans.
Total commercial loans grew to $3.77 billion at September 30, 2004, up from
$3.48 billion at December 31, 2003, as a result of new commercial loan
commitments of $1.70 billion during the first nine months of 2004, partially
offset by principal repayments and the internal securitization of multifamily
loans. Consumer loans increased to $458.5 million at September 30, 2004, from
$317.5 million at December 31, 2003, primarily due to new consumer loan
commitments. As a result of lower market interest rates, the Company experienced a
higher level of new loan commitments; $1.92 billion for the nine months ended
September 30, 2004, which was composed of $1.70 billion in commercial loan
commitments and $221.3 million in consumer commitments. In 2003, the Company implemented a securities restructuring strategy
intended to replace securities that have high prepayment and extension risk
with securities that are shorter-dated and have less prepayment and extension
risk. The Company also increased loan production and accelerated the planned
balance sheet restructuring announced at the time of the BCC acquisition to
reduce the percentage of securities and increase the percentage of loans on the
balance sheet. The securities restructuring strategy and increased loan
production were intended to protect the Company from mark-to-market volatility
in the securities portfolio and better position the Company for accelerated
margin expansion in an upward market interest rate environment. The securities balance (including the available for sale and
held-to-maturity portfolios) increased by $35.0 million from December 31, 2003
to September 30, 2004. This was primarily the result of purchases of $786.4
million and internal securitizations of $147.1 million, partially offset by
sales of $600.9 million and principal repayments and securities calls of $255.4
million during the first nine months of 2004. The Company experienced continued asset and core deposit growth during the
first nine months of 2004. The increase of $532.4 million in total assets from
December 31, 2003 to September 30, 2004 was primarily related to increases in
the loan portfolio. Page 30




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##### Table of Contents



Loan Quality Data and Ratios The following table outlines certain information regarding the Companys
allowance for loan losses, past due and nonperforming loans for the periods
indicated: At September 30,
    
    At December 31,
    
    Increase (Decrease)2004
    
    2003
    
    $/Basis Points
    
    %(Dollars in thousands)Allowance for loan losses
    
    $
    59,347
    
    
    $
    58,126
    
    
    $
    1,221
    
    
    
    2.10
    %Allowance for loan losses to total loans
    
    
    1.40
    %
    
    
    1.53
    %
    
    
    (13
    ) bp
    
    
    (8.50
    %)Past due loans to total loans
    
    
    0.72
    %
    
    
    0.86
    %
    
    
    (14
    ) bp
    
    
    (16.28
    %)Nonperforming loans/assets
    
    $
    6,415
    
    
    $
    5,857
    
    
    $
    558
    
    
    
    9.53
    %Nonperforming assets to total assets
    
    
    0.10
    %
    
    
    0.10
    %
    
    
    
    
    
    
    
 The allowance for loan losses increased $1.2 million from December 31,
2003 to September 30, 2004 which reflected the growth in the loan portfolio
during the nine months ended September 30, 2004 and the increased concentration
in commercial loans. The ratio of past due loans to total loans decreased 14
basis points from December 31, 2003 as a result of our continued focus in
maintaining good asset quality. The increase of $558,000 in nonperforming
assets is primarily attributable to a commercial loan secured by nonresidential
real estate. The following table shows the composition of the Banks loan portfolio by
amount and percentage of gross loans in each major loan category at the dates
indicated: At September 30, 2004
    
    At December 31, 2003Amount
    
    %
    
    Amount
    
    %(Dollars in Thousands)Commercial:Secured by real estate-nonresidential
    
    $
    1,810,693
    
    
    
    42.78
    %
    
    $
    1,724,179
    
    
    
    45.37
    %Secured by real estate-multifamily
    
    
    1,287,600
    
    
    
    30.42
    
    
    
    1,162,565
    
    
    
    30.59Construction
    
    
    267,954
    
    
    
    6.33
    
    
    
    293,875
    
    
    
    7.74Commercial business
    
    
    407,853
    
    
    
    9.64
    
    
    
    302,159
    
    
    
    7.95Total commercial
    
    
    3,774,100
    
    
    
    89.17
    
    
    
    3,482,778
    
    
    
    91.65Consumer:Residential mortgage (one to four family)
    
    
    412,859
    
    
    
    9.75
    
    
    
    274,392
    
    
    
    7.22Other
    
    
    45,669
    
    
    
    1.08
    
    
    
    43,117
    
    
    
    1.13Total consumer
    
    
    458,528
    
    
    
    10.83
    
    
    
    317,509
    
    
    
    8.35Total gross loans
    
    
    4,232,628
    
    
    
    100.00
    %
    
    
    3,800,287
    
    
    
    100.00
    %Net deferred loan origination fees
    
    
    (7,335
    )
    
    
    
    
    
    
    (8,644
    )Loans
    
    
    4,225,293
    
    
    
    
    
    
    
    3,791,643Allowance for loan losses
    
    
    (59,347
    )
    
    
    
    
    
    
    (58,126
    )Net loans
    
    $
    4,165,946
    
    
    
    
    
    
    $
    3,733,517
 The Company continues to emphasize production of commercial real estate
and commercial business loans. The Company originates and funds loans that
qualify for guaranty issued by the SBA. The U.S. Government guarantee on such
loans is generally in the range of 75% to 85% of the loan amount. The residual
portion of the loan, ranging from 15% to 25%, is not guaranteed by the U.S.
Government, and the Company bears the credit risk on that portion of such
loans. The Company generally sells the guaranteed portion of each SBA loan at
the time of loan origination. From time to time, the Company may sell part of
the unguaranteed portion of the SBA loans. SBA regulations require that the
originator retain a minimum of 5% of the total loan amount. The amount of the
unsold guaranteed portion of SBA loans was not material as of September 30,
2004, and December 31, 2003, respectively. Page 31




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Construction loans, commercial business loans and SBA loans generally have
monthly repricing terms. Commercial real estate loans generally reprice
monthly or are intermediate fixed, meaning that the loans have interest rates
that are fixed for a period, typically five years, and then generally reprice
monthly or become due and payable. Multifamily loans are generally
adjustable-rate and reprice semiannually. Residential mortgage (one to four
family) loans may be adjustable-rate and reprice semiannually or annually, have
fixed rates for terms of 15 or 30 years, or have interest rates that are fixed
for a period, typically five years, and then generally reprice semiannually or
annually. The following table reflects the Banks loan composition by rate at the
dates indicated: At September 30,
    
    At December 31,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in thousands)Adjustable-rate loans
    
    $
    2,651,865
    
    
    $
    2,699,690
    
    
    ($
    47,825
    )
    
    
    (1.77
    %)Intermediate fixed-rated loans
    
    
    1,038,020
    
    
    
    563,570
    
    
    
    474,450
    
    
    
    84.19
    %Fixed-rate loans
    
    
    542,743
    
    
    
    537,027
    
    
    
    5,716
    
    
    
    1.06
    %Total gross loans
    
    $
    4,232,628
    
    
    $
    3,800,287
    
    
    $
    432,341
    
    
    
    11.38
    %
 Adjustable-rate loans decreased $47.8 million from December 31, 2003 to
September 30, 2004 as a result of loans paid off, sold and securitized offset
by the origination of new loans. Adjustable-rate loans represented 62.7% of
gross loans at September 30, 2004, compared with 71.0% of gross loans at
December 31, 2003. The increase of $474.5 million in intermediate fixed-rate
loans from December 31, 2003 to September 30, 2004 is a result of the
origination of new intermediate fixed-rate multifamily loans. The fixed-rate
loans increased $5.7 million from December 31, 2003 to September 30, 2004. The following table reflects the Banks new loan commitments during the
periods indicated: For the Nine Months EndedSeptember 30,2004
    
    2003(Dollars in Thousands)Commercial:Secured by real estate-nonresidential (1)
    
    $
    496,658
    
    
    $
    412,170Secured by real estate-multifamily (1)
    
    
    562,633
    
    
    
    434,687Construction
    
    
    318,843
    
    
    
    258,012Commercial business
    
    
    320,965
    
    
    
    179,312Total commercial loans
    
    
    1,699,099
    
    
    
    1,284,181Consumer:Residential mortgage (one to four family) (1)
    
    
    190,243
    
    
    
    140,941Home equity and other
    
    
    31,013
    
    
    
    21,794Total consumer loans
    
    
    221,256
    
    
    
    162,735Total new commitments
    
    $
    1,920,355
    
    
    $
    1,446,916
  (1) For nonresidential loans, substantially all commitments have been
funded. For multifamily and residential mortgage (one to four family)
loans, all commitments have been funded. Internal Loan Securitizations.The Company manages its risk-based capital
level through a variety of means, including internal loan securitizations. In
such securitizations, the Company transfers to Fannie Mae (FNMA) either
multifamily or residential mortgage (one to four family) loans in exchange for
FNMA securities. Residential mortgage loans are generally included in the 50%
risk weight for risk-based capital purposes, where multifamily loans may fall
either into the 50% or 100% risk weight depending on the specific criteria of
each individual loan. FNMA securities are classified as a 20% risk weight. Page 32




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These internal loan securitizations do not have a material cash impact to
the Company, since selected loans from the Companys loan portfolio are
transferred to FNMA for FNMA securities. Such securities are represented by
exactly the same loans previously held in the Companys loan portfolio. The
FNMA securities are generally held as available for sale (AFS) securities in
the Companys investment and mortgage-backed securities portfolio. Through these internal loan securitization transactions, the Company also
reduces its credit risk. In these securitizations, the Company fully transfers
credit risk on the related loans to FNMA. The Companys yield on the FNMA
securities is lower than the average yield on the underlying loans. This
difference is the guarantee fee that is retained by FNMA as compensation for
relieving the Company of the credit risk on these loans. Since the Company
retains all of the securities issued by FNMA in the securitization, no gain or
loss is recognized on the exchange transaction. The Company continues to
service the loans included in these securitizations and is paid servicing fees
for such servicing. In addition, these securitization transactions improve the Companys
liquidity, since FNMA securities receive more favorable treatment as a
collateral base for borrowings than do whole loans. During the nine months ended September 30, 2004, the Company internally
securitized $147.1 million of multifamily loans. Risk Elements. Management generally places loans on nonaccrual status
when they become 90 days past due, unless they are both well secured and in the
process of collection. Loans may be placed on nonaccrual status earlier if the
full and timely collection of principal or interest becomes uncertain. When a
loan is placed on nonaccrual status, unpaid accrued interest is charged against
interest income. The Company charges off loans when it determines that
collection has become unlikely. Other real estate owned (OREO) consists of
real estate acquired by the Company through foreclosure. Following is the Banks risk elements table: At September 30,
    
    At December 31,2004
    
    2003(Dollars in Thousands)Nonaccrual loans:CommercialSecured by real estate-nonresidential
    
    $
    1,696
    
    
    $
    Secured by real estate-multifamily
    
    
    
    
    
    
    Construction
    
    
    4,094
    
    
    
    5,102Commercial business
    
    
    625
    
    
    
    631Total commercial
    
    
    6,415
    
    
    
    5,733ConsumerResidential mortgage (one to four family)
    
    
    
    
    
    
    124Other
    
    
    
    
    
    
    Total consumer
    
    
    
    
    
    
    124Total nonaccrual loans
    
    
    6,415
    
    
    
    5,857Other real estate owned (OREO)
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    6,415
    
    
    $
    5,857Nonperforming assets to total assets
    
    
    0.10
    %
    
    
    0.10
    %Nonaccrual loans to total loans
    
    
    0.15
    %
    
    
    0.15
    %Nonperforming assets to total loans and OREO
    
    
    0.15
    %
    
    
    0.15
    %Loans
    
    $
    4,225,293
    
    
    $
    3,791,643Gross income not recognized on nonaccrual loans
    
    $
    509
    
    
    $
    363Accruing loans contractually past due 90 days or more
    
    $
    3,587
    
    
    $
    1,469Loans classified as troubled debt restructurings but not included above
    
    $
    8,974
    
    
    $
    9,094
 Page 33




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Total nonperforming assets increased $558,000 from December 31, 2003 to
September 30, 2004. The increase was attributable to a commercial loan secured
by real estate. The Bank records OREO at the lower of carrying value or fair
value less estimated disposal costs. Any write-down of OREO is charged to
earnings. The Bank held no OREO at September 30, 2004 or December 31, 2003. The $9.0 million troubled debt restructurings in the table above represent
a performing commercial real estate loan. No interest rate concessions were
made on this loan. The restructured classification is due to the Bank making
interest rate concessions on a separate loan to the same obligor on the same
property. The total fully drawn outstanding balance on the second loan is $1.7
million and is included in the nonaccrual construction loans balance in the
table above. Management cannot predict the extent to which economic conditions in the
Banks market area may worsen or the full impact that such conditions may have
on the Banks loan portfolio. Accordingly, there can be no assurance that
other loans will not become 90 days or more past due, be placed on nonaccrual
status, or become impaired or restructured loans or OREO in the future. Allowance for Loan Losses.The allowance for loan losses covers the
commercial and consumer loan portfolio. The allowance for loan losses is
intended to adjust the carrying value of the Companys loan assets for probable
credit losses inherent at the balance sheet date in accordance with GAAP. The
methodology for calculating the allowance for loan losses involves significant
judgment. See the Critical Accounting Estimates section under this Item for
a discussion on the methodology. Notwithstanding the judgment required in assessing the allowance for loan
losses, the Company believes its estimate for the allowance for loan losses is
adequate. The following table sets forth information concerning the Banks allowance
for loan losses for the periods indicated: At or for the Nine Months EndedSeptember 30,2004
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    58,126
    
    
    $
    46,464Acquired allowance for loan losses
    
    
    
    
    
    
    4,028Provision for loan losses
    
    
    4,827
    
    
    
    6,644Loans charged off
    
    
    (2,876
    )
    
    
    (2,661
    )Recoveries
    
    
    113
    
    
    
    1,235Balance before reclassification
    
    
    60,190
    
    
    
    55,710Reclassification allowance for unfunded
commitments recorded to other liabilities
    
    
    (843
    )
    
    
    (426
    )Balance at end of period
    
    $
    59,347
    
    
    $
    55,284Allowance for loan losses to loans
    
    
    1.40
    %
    
    
    1.53
    %Annualized net charge-offs to average loans
    
    
    0.09
    %
    
    
    0.06
    %
 Page 34




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Securities. The Company maintains an investment and mortgage-backed
securities portfolio (portfolio) to provide both liquidity and enhance the
income of the organization. The portfolio is composed of two segments:
Available For Sale (AFS) and Held-to-maturity (HTM). The Company does not
maintain a trading portfolio. The Company carries the AFS portfolio at fair
value, with unrealized changes in the fair value of the securities reflected as
Accumulated Other Comprehensive Income. At the end of each month, the Company
adjusts the carrying value of its AFS portfolio to reflect the current fair
value of each security. The HTM portfolio is carried at amortized cost. At
the time a security is purchased, the Company classifies it either as AFS or
HTM. Securities are classified as HTM if the Company has the positive intent
and ability to hold such securities to maturity. The Companys portfolio investments are governed by an Asset/Liability
Policy (A/L Policy), which is approved by the Board of Directors of the
Company. The A/L Policy sets forth exposure limits for selected investments,
as a function of total assets, total securities and Tier I Capital. The A/L
Policy further sets forth maximum maturity and duration limits as well as
limits on premiums paid for securities. The A/L Policy also further limits the
concentration in a particular investment as a function of the total issue. The
A/L Policy sets forth goals for each type of investment with respect to Return
on Assets, Return on Equity and Return on Risk-Based Capital. It also sets
forth limits for interest rate sensitivity for each type of investment. Permitted investments include U.S. Government obligations, agency
securities, municipal obligations, investment grade securities, commercial
paper, corporate debt, money market mutual funds and guaranteed preferred
beneficial interests in junior subordinated debentures. The Companys Board
has directed management to invest in securities with the objective of
optimizing the yield on investments that appropriately balance the risk-based
capital utilization and interest rate sensitivity. The A/L Policy requires
that all securities be of investment grade at the time of purchase. To protect against the accelerating prepayment speed of the securities
portfolio due to lower market interest rate environment, the Company
implemented a securities portfolio restructuring strategy during the second
quarter of 2003. Under this strategy, the Company began selling AFS securities
that had the highest exposure to prepayment and extension risk, and purchased
shorter-dated securities with reduced prepayment and extension risk. The
restructuring strategy was complete as of June 30, 2004. The following table represents the Companys investment and
mortgage-backed securities portfolio by available for sale and held-to-maturity
at the dates indicated: At September 30,
    
    At December 31,
    
    Increase (Decrease)2004
    
    2003
    
    $
    
    %(Dollars in thousands)Available for sale
    
    $
    1,217,391
    
    
    $
    1,221,070
    
    
    ($
    3,679
    )
    
    
    (0.30
    %)Held-to-maturity
    
    
    323,398
    
    
    
    284,712
    
    
    
    38,686
    
    
    
    13.59
    %Total investment and
mortgage-backed securities
    
    $
    1,540,789
    
    
    $
    1,505,782
    
    
    $
    35,007
    
    
    
    2.32
    %
 The investment and mortgage-backed securities portfolio (including
available for sale and held-to-maturity) increased slightly by $35.0 million
during the nine months ended September 30, 2004. The increase in the portfolio
was a result of purchases of $786.4 million and $147.1 million of FNMA
securities received in the internal securitization of multifamily loans,
partially offset by sales of $600.9 million and principal repayments and
securities calls of $255.4 million. The AFS portfolio provides liquidity for the Companys operations. Such
liquidity can either be realized through the sale of AFS securities or through
borrowings. Securities are generally pledged as collateral for any such
borrowings. Page 35




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During the nine months ended September 30, 2004, the Company increased its
held-to-maturity portfolio by $38.7 million from December 31, 2003. This
increase resulted from purchased securities during the period that were
classified as held-to-maturity, a reflection of the Companys intent and
ability to hold these securities to maturity based upon our liquidity position
and the size of our portfolio. The Company plans from time to time to continue
to purchase securities for its held-to-maturity portfolio. The following table presents the Companys investment and mortgage-backed
securities portfolio on the dates indicated: At September 30, 2004
    
    At December 31, 2003Amortized
    
    Market
    
    Amortized
    
    MarketCost
    
    Value
    
    Cost
    
    Value(Dollars in Thousands)Investment securities available for sale:Trust Preferred Securities
    
    $
    14,441
    
    
    $
    14,255
    
    
    $
    13,189
    
    
    $
    12,795Federal Agency Notes
    
    
    132,610
    
    
    
    129,954
    
    
    
    222,309
    
    
    
    218,753Asset-backed Securities
    
    
    438
    
    
    
    429
    
    
    
    16,426
    
    
    
    16,285Municipals
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    90Domestic Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    5,153
    
    
    
    5,148Commercial Paper
    
    
    29,998
    
    
    
    29,998
    
    
    
    9,991
    
    
    
    9,991Total investment securities available for sale
    
    
    177,487
    
    
    
    174,636
    
    
    
    267,158
    
    
    
    263,062Mortgage-backed securities available for sale:FNMA
    
    
    435,846
    
    
    
    434,751
    
    
    
    440,835
    
    
    
    440,453GNMA
    
    
    127,347
    
    
    
    125,372
    
    
    
    79,103
    
    
    
    78,842FHLMC
    
    
    283,318
    
    
    
    279,984
    
    
    
    275,882
    
    
    
    273,940Other
    
    
    201,330
    
    
    
    202,648
    
    
    
    163,687
    
    
    
    164,773Total mortgage-backed securities available for sale
    
    
    1,047,841
    
    
    
    1,042,755
    
    
    
    959,507
    
    
    
    958,008Total investment and mortgage-backed securities available for sale
    
    $
    1,225,328
    
    
    $
    1,217,391
    
    
    $
    1,226,665
    
    
    $
    1,221,070Investment securities held-to-maturity:Municipals
    
    $
    205,756
    
    
    $
    211,200
    
    
    $
    184,264
    
    
    $
    187,735Mortgage-backed securities held-to-maturity:FNMA
    
    
    6,094
    
    
    
    6,010
    
    
    
    
    
    
    
    FHLMC
    
    
    1,589
    
    
    
    1,570
    
    
    
    
    
    
    
    GNMA
    
    
    109,288
    
    
    
    108,960
    
    
    
    99,524
    
    
    
    98,713Other
    
    
    671
    
    
    
    671
    
    
    
    924
    
    
    
    924Total mortgage-backed securities held-to-maturity
    
    
    117,642
    
    
    
    117,211
    
    
    
    100,448
    
    
    
    99,637Total investment and mortgage-backed securities held-to-maturity
    
    
    323,398
    
    
    
    328,411
    
    
    
    284,712
    
    
    
    287,372Total investment and mortgage-backed securities
    
    $
    1,548,726
    
    
    $
    1,545,802
    
    
    $
    1,511,377
    
    
    $
    1,508,442
 As of September 30, 2004, the carrying value and the market value of the
available for sale securities was $1.22 billion. The total net unrealized loss
on these securities was $7.9 million. Such unrealized losses, net of tax, are
$4.6 million and are reflected as a reduction to stockholders equity. The
difference between the carrying value and market value of securities that are
held-to-maturity, aggregating to a gain of $5.0 million, has not been
recognized in the financial statements as of September 30, 2004. The
unrealized net losses are the result of movements in market interest rates. In conjunction with the Companys review of the fair value of securities,
for the nine months ended September 30, 2004, there were no additional other
than temporary impairment charges recorded since December 31, 2003. Page 36




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Deposits. Deposits are the Banks primary source of funds to use in
lending and investment activities. Deposit balances were $5.02 billion at
September 30, 2004, which represented an increase of $536.7 million from $4.48
billion at December 31, 2003. Core deposit balances increased by $368.8
million, or 19.3% to $2.28 billion at September 30, 2004, compared with $1.91
billion at December 31, 2003. Core deposits include NOW, checking, money
market and savings accounts. The growth in core deposits resulted primarily
from the Banks continued focus on developing new and expanding existing
commercial and consumer relationships in the ethnic Chinese community, its
retail niche market. At September 30, 2004, 54.6% of our deposits were time
deposits; 26.1% were NOW, checking and money market accounts; and 19.3% were
savings accounts. By comparison, at December 31, 2003, 57.4% of deposits were
time deposits; 22.9% were NOW, checking and money market accounts; and 19.7%
were savings accounts. The Bank obtains deposits primarily from the communities it serves. At
September 30, 2004, the 100 depositors with the largest aggregate deposit
balances comprised 19.6% of the Banks total deposits. Included in time
deposits as of September 30, 2004, are $1.81 billion of deposits of $100,000 or
greater. Such deposits comprise 36.1% of total deposits. Most of the time
deposits as of September 30, 2004 mature in one year or less. With the
exception of state and federal government entities (Public Fund Sector)
contributing 7.4% of total deposits at September 30, 2004, no other material
portion of our deposits were from or were dependent upon any one customer or
industry. The following table presents the balances and rates paid for categories of
deposits at the dates indicated (dollars in thousands): At September 30, 2004
    
    At December 31, 2003Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageBalance
    
    Rate
    
    Balance
    
    RateNOW, checking and money market accounts
    
    $
    1,310,613
    
    
    
    0.86
    %
    
    $
    1,026,047
    
    
    
    0.65
    %Savings accounts
    
    
    968,275
    
    
    
    0.98
    
    
    
    884,064
    
    
    
    0.77Time deposits:Less than $100,000
    
    
    929,711
    
    
    
    1.67
    
    
    
    1,042,843
    
    
    
    1.73$100,000 or greater
    
    
    1,811,626
    
    
    
    2.02
    
    
    
    1,530,567
    
    
    
    1.82Total time deposits
    
    
    2,741,337
    
    
    
    1.90
    
    
    
    2,573,410
    
    
    
    1.79Total deposits
    
    $
    5,020,225
    
    
    
    1.45
    
    
    $
    4,483,521
    
    
    
    1.33
 Other Borrowings.The Bank maintains borrowing lines with numerous
correspondent banks and brokers and with the Federal Home Loan Bank (FHLB) of
San Francisco to supplement its supply of lendable funds. Such borrowings are
generally secured with mortgage loans and/or securities with a market value at
least equal to outstanding balances. In addition to loans and securities,
advances from the FHLB of San Francisco are typically secured by a pledge of
our stock in the FHLB of San Francisco. At September 30, 2004, the Bank had
$409.1 million of borrowings outstanding, as compared to $505.5 million
outstanding at December 31, 2003. Included in the $409.1 million of borrowings were $26.0 million of
short-term FHLB advances that mature within one year, and $335.1 million in
long-term FHLB advances that mature between 2006 and 2008. As of September 30,
2004, $241.0 million of these borrowings are long-term FHLB advances that may
be terminated at the option of FHLB of San Francisco. The FHLB, at its option,
may terminate the advances at quarterly intervals at specified periods ranging
from three to five years beyond the original advance dates. To date, the FHLB
has not exercised its option to terminate any advances to the Company. In the
event the FHLB decided to exercise the option, the Company would need to pay
these advances back. If such event occurs, the Company could utilize
repurchase agreements with other firms to borrow against securities, raise
additional deposits, sell securities or other assets, enter into new advances
with the FHLB, or any combination of the above to pay off the terminated
advances. At September 30, 2004, the Company had $710.5 million of additional
FHLB borrowing capability that can be utilized. Page 37




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Additionally, as of September 30, 2004, the Hong Kong branch had
short-term borrowings of $48.0 million principally denominated in Hong Kong
dollars with local financial institutions for liquidity management purposes. The following table sets forth certain information regarding short- and
long-term borrowings of the Bank at or for the periods indicated: At or For the Nine Months EndedSeptember 30,2004
    
    2003Short-term borrowings:FHLB of San Francisco advances and other short-term borrowings:Average balance outstanding
    
    $
    188,252
    
    
    $
    54,565Maximum amount outstanding at any month end period
    
    
    255,992
    
    
    
    125,936Balance outstanding at end of period
    
    
    74,027
    
    
    
    48,125Weighted average interest rate during the period
    
    
    1.26
    %
    
    
    1.43
    %Weighted average interest rate at end of period
    
    
    1.54
    %
    
    
    1.38
    %Weighted average remaining term to maturity at end of period (in years)
    
    
    
    
    
    
    Long-term borrowings:FHLB of San Francisco advances:Average balance outstanding
    
    $
    287,328
    
    
    $
    272,368Maximum amount outstanding at any month end period
    
    
    335,104
    
    
    
    275,835Balance outstanding at end of period
    
    
    335,066
    
    
    
    271,523Weighted average interest rate during the period
    
    
    5.06
    %
    
    
    5.06
    %Weighted average interest rate at end of period
    
    
    4.88
    %
    
    
    5.12
    %Weighted average remaining term to maturity at end of period (in years)
    
    
    2.7
    
    
    
    4.2
 Subordinated Debentures of the Company (Trust Preferred Securities or
TPS).The Company established special purpose trusts in 1998, 2001, and 2002
for the purpose of issuing Guaranteed Preferred Beneficial Interests in its
Junior Subordinated Debentures (Capital Securities). The trusts exist for
the sole purpose of issuing the Capital Securities and investing the proceeds
thereof in Subordinated Debentures issued by the Company. Payment of
distributions out of the monies held by the trusts and payments on liquidation
of the trusts, or the redemption of the Capital Securities, are guaranteed by
the Company to the extent the trusts have funds available thereof. The
obligations of the Company under the guarantees and the Subordinated Debentures
are subordinate and junior in right of payment to all indebtedness of the
Company and will be structurally subordinated to all liabilities and
obligations of the Companys subsidiaries. These trusts are not consolidated
in our financial statements. Please see Note 2 to the Consolidated Financial
Statements for further discussion. The Company had $136.0 million of TPS outstanding at September 30, 2004
and at December 31, 2003. The proceeds of the 2002 issuances were primarily
used as part of the funding for the acquisition of BCC in October 2002. Regulatory Capital. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines as calculated under regulatory accounting practices. As of
September 30, 2004, the Bank met the Well Capitalized requirements under
these guidelines. The total risk-based capital ratio of the Bank at September
30, 2004, was 12.83%, as compared with 12.18% at December 31, 2003. The ratio
of Tier I Capital (as defined in the regulations) to average assets (as
defined) of the Bank at September 30, 2004, was 8.22% as compared with 7.86% at
December 31, 2003. The increase in these two ratios was primarily due to net
income for the nine months ended September 30, 2004. The Company is
categorized as Well Capitalized. The Companys total risk-based capital
ratio is higher than the Banks due to the inclusion of the Capital
Securities as capital in the risk-based capital calculation. Capital
Securities are includable as capital up to 25% of Tier I Capital. Page 38




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As discussed in Note 2 to the Consolidated Financial Statements, which
this discussion accompanies, the trusts were deconsolidated for reporting
purposes pursuant to the FIN 46R interpretation. The Federal Reserve Bank has
proposed a rule that would allow a three-year phase-in period during which the
amount of capital securities that could be included in Tier I capital would
remain unchanged at 25% after deducting goodwill from the capital base. Based
on the proposed rule, the Company would be under the allowable limit by $21.0
million based on the September 30, 2004 capital position of the Company. Based
upon management projections of the capital position of the Company at the end
of the proposed phase-in period, the Company would not have any exclusion of
capital securities. The Banks Tier I capital and total risk based capital
would be unaffected as the trusts and their securities have been issued at the
holding company level. Contractual Obligation and Off-Balance-Sheet Arrangements.In the
ordinary course of operations, the Company enters into certain contractual
obligations. Such obligations include the funding of operations through debt
issuances as well as leases for premises and equipment. The Company also uses
derivative financial instruments on a limited basis, thus creating contractual
obligations, as part of its interest rate and foreign exchange risk management
process and customer accommodation activities. The Company engages in certain
financial transactions that are not recorded on the Companys balance sheet,
or may be recorded on the Companys balance sheet in amounts that are different
than the full contract or notional amount of the transaction; both of these
accounting treatments are in accordance with generally accepted accounting
principles. Such transactions are structured to meet the financial needs of
customers, manage the Companys credit, market or liquidity risks, diversify
funding sources or optimize capital. See Note 7 to the Consolidated Financial
Statements for further discussion on off-balance-sheet arrangements. Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. These letters of
credit are usually secured by inventories or by deposits held at the Company.
Foreign exchange contracts are contracts to purchase or sell currencies in the
over-the-counter market. Such contracts can be either for immediate or for
forward delivery. The Bank purchases or sells foreign exchange contracts in
order to hedge a balance sheet or off-balance-sheet foreign exchange position.
Additionally, the Bank purchases and sells foreign exchange contracts for
customers, as long as the foreign exchange risk is fully hedged with an
offsetting position. Liquidity.As a financial institution, we must maintain sufficient levels
of liquid assets at all times to meet our cash flow needs. These liquid assets
ensure that we have the cash available to pay out deposit withdrawals, meet the
credit needs of our customers and are able to take advantage of investment
opportunities as they arise. In addition to liquid assets, certain liabilities
can provide liquidity as well. Liquid assets can include cash and deposits
that we have with other banks, federal funds sold and other short-term
investments, maturing loans and investments, payments by borrowers of principal
and interest on loans, and payments of principal and interest on investments
and loans sales. Additional sources of liquidity can include increased
deposits, lines of credit and other borrowings. At September 30, 2004, we had $2.39 billion of certificates of deposit
scheduled to mature within one year. We believe that our liquidity resources
will provide us with sufficient amounts of cash necessary to meet these
commitments. Our liquidity may be adversely affected by unexpected withdrawals of
deposits, excessive interest rates paid by competitors and other factors. We
review our liquidity position regularly in light of our expected growth in
loans and deposits. We believe that we maintain adequate sources of liquidity
to meet our needs. Page 39




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Capital Resources.The Company has continuously declared quarterly
dividends on common stock since 1999. During the nine months ended September
30, 2004, the Company paid aggregate dividends of $5.0 million. The payment of
such dividends did not have a significant impact on the liquidity of the
Company. As a result of dividends declared, the total capital of the Company
was reduced by $5.4 million during the nine months ended September 30, 2004.
The dividends declared during the nine months ended September 30, 2004 had the
effect of reducing the Tier I leverage capital and risk-based capital ratios by
approximately thirteen basis points each. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the Companys exposure to market risk
since the information was disclosed in the Companys Annual Report on Form 10-K
dated December 31, 2003, on file with the Securities and Exchange Commission
(SEC File No. 0-24947). 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as defined in the Securities
Exchange Act of 1934, as amended (the Exchange Act), Rule 13(a)-15(e). Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that such controls and procedures are effective. During
the third quarter of 2004, there were no changes in the Companys internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting. 
 PART II  OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS The Companys wholly owned subsidiary, United Commercial Bank, has been a
party to litigation incidental to various aspects of its operations, in the
ordinary course of business. Management is not currently aware of any litigation that will have a
material adverse impact on the Companys consolidated financial condition, or
the results of operations. 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES None. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Page 40




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On September 24, 2004, the Company held a special meeting of stockholders
to approve the amendments to the 1998 Stock Option Plan (the Plan) to
increase the number of shares reserved for awards under the Plan to 11,828,824
and to revise the definition of Change in Control to conform to current
Change in Control agreements with certain senior management. Number of
    
    
    
    
    
    Number ofVotes
    
    Number of
    
    Votes
    
    BrokerFor
    
    Votes Against
    
    Abstaining
    
    Non-VotesApproval of the
amendments to the
UCBH Holdings, Inc.
1998 Stock Option
Plan to increase
the number of
shares reserved for
awards under the
Plan to 11,828,824
and to revise the
definition of
Change in Control
to conform to
current Change in
Control agreements
with certain senior
management
    
    
    30,653,749
    
    
    
    8,023,911
    
    
    
    78,164
    
    
    
    
 
 ITEM 5. OTHER INFORMATION Employment and Change in Control Agreements The Bank and the Company (collectively for this section called Company)
have entered into an updated employment agreement (Agreement) with Thomas S. Wu,
Chairman, President and Chief Executive Officer of the Company (the
Executive), which is attached as Exhibit 10.1. The Agreement replaces the
previous employment agreement between United Commercial Bank and Thomas S. Wu
as well as the previous employment agreement between UCBH Holdings, Inc. and
Thomas S. Wu. The Agreement is intended to ensure that the Company will be
able to maintain a stable and competent management base. The continued success
of the Company depends to a significant degree on the skills and competence of
the Executive. The employment agreement provides for a three-year term. The Agreement
provides that, commencing on the date of execution, the term of the Agreement
shall be extended for one day for each day that lapses until such time as the
Board or the Executive elects not to extend the term of the Agreement by
written notice, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice. The
Agreement provides that the Executives base salary will be reviewed at least
annually and a bonus may be awarded by the Board. If there is a voluntary
termination or a termination for cause, the Executive shall be entitled to
receive compensation through the date of termination. In the event that there
is a termination for disability or death, the Executive shall be entitled to
receive base salary and benefits through the remaining term of the Agreement
and any unvested stock options and related limited rights and unvested awards
granted to the Executive under any stock option and similar plans shall
immediately vest and shall be exercisable within one year. In the event of a
termination without cause or a resignation from the Company upon a Change in
Duties (as defined in the Agreement), material adverse change in or loss of
title, office or significant authority or responsibility, material reduction in
base salary or benefits (excluding bonus) or a relocation of the Executives
principal place of employment by more than 25 miles, the Executive would be
entitled to receive a sum equal to three (3) times the highest annual
compensation (base salary plus bonus) over the three years immediately
preceding the termination and any unvested stock options and related limited
rights and unvested awards granted to Executive under any stock option and
similar plans shall immediately vest and shall be exercisable within one (1)
year. The Company would also continue and pay for the Executives life, health
and disability insurance coverage for the remaining term of the Agreement. Page 41




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Under the Agreement, if an involuntary termination or a resignation due to
a Change in Duties follows a change in control of the Company as defined in the
Agreement, it is expected that, the Executive, or, in the event of the
Executives death, his beneficiary, would be entitled to a severance payment
equal to three (3) times the highest annual compensation due to the Executive
over the three years immediately preceding the Change in Control and any
unvested stock options and related limited rights and unvested awards granted
to the Executive under any stock option and similar plans shall immediately
vest and shall be exercisable within one (1) year. The Company would also
continue the Executives life, health and disability insurance coverage for 36
months. Also, the change in control provisions provides that if it should be
determined that any payment or distribution pursuant to this Agreement would be
subject to an Excise Tax, as defined in the Agreement, the Executive shall be
entitled to receive from the Company an additional payment (Gross-Up Payment)
in an amount such that after payment by the Executive of all taxes, including
any income taxes and Excise Tax imposed upon the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Termination Benefits. The Company has also entered into three-year termination and change in
control agreements (CIC Agreements) with certain other executive officers of
the Company, including the Named Executive Officers in the Companys most
recent Proxy Statement, other than Thomas S. Wu (the Officers), which are
attached as Exhibits 10.2, 10.3, and 10.4. The CIC Agreements provide that
commencing on the first anniversary date and continuing on each anniversary
thereafter, the Banks CIC Agreements may be renewed by the Board of Directors
for an additional year. The CIC Agreements provide that in the event an
involuntary termination or a resignation due to a Change in Duties follows a
change in control of the Company, unless termination is for cause, the Officer
or, in the event of death, the Officers beneficiary, would be entitled to
receive a severance payment equal to three times the Officers highest annual
compensation for the three years preceding the change in control.
Additionally, any unvested stock options and related limited rights
and unvested awards granted to the Officer under any stock option and
similar plans shall immediately vest and shall be exercisable within
one (1) year. For some
Officers, the definition of annual compensation includes base salary plus
bonus. The Company would also continue, and pay for, the Officers life,
medical and disability insurance coverage for thirty-six (36) months from the
date of termination or resignation. The Executive Vice President and Chief Financial Officers CIC Agreement
contains the Gross-Up Payment provision which operates similarly to that
described above for the Executives employment agreement. The other Officers
Agreements provide that if the payment under the CIC Agreement exceeds the
amount which can be paid to the Officer without the Officer incurring an Excise
Tax, as defined in the CIC Agreement, and the Officer would receive a greater
net after-tax amount by applying the limitation contained in this paragraph,
then the amounts payable to the Officer under the CIC Agreement would be
reduced to the maximum which may be paid without the Officer becoming subject
to such an Excise Tax (such reduced payments to be referred to as the Payment
Cap). In the event that the Officer receives reduced payments and benefits
otherwise provided for in the CIC Agreement, the Officer shall have the right
to designate which of the payments and benefits otherwise provided for in the
CIC Agreement that the Officer will receive in connection with the application
of the Payment Cap. If it shall be determined that the Officer would not
receive a net after-tax benefit resulting from the application of the Payment
Cap, then no reduction shall be made with respect to the pay or benefits due to
the Officer. Page 42




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    List of Exhibits (filed herewith unless otherwise noted)3.1
    
    Second Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.******3.2
    
    Amended and Restated Bylaws of UCBH Holdings, Inc.******4.0
    
    Form of Stock Certificate of UCBH Holdings, Inc.*4.1
    
    Indenture of UCBH Holdings, Inc., dated April 17, 1998, relating to
Series B Junior Subordinated Debentures****4.2
    
    Form of Certificate of Series B Junior Subordinated Debenture****4.4
    
    Amended and Restated Declaration of Trust of UCBH Trust Co.****4.5
    
    Form of Series B Capital Security Certificate for UCBH Trust Co.****4.6
    
    Form of Series B Guarantee of the Company relating to the Series B Capital Securities****4.7
    
    Rights Agreement dated as of January 28, 2003*****10.1
    
    Employment Agreement between UCBH Holdings Inc., United
Commercial Bank and Thomas S. Wu.10.2
    
    Form of Change in Control Agreement among UCBH Holdings Inc., United
Commercial Bank and Jonathan H. Downing.10.3
    
    Form of Change in Control Agreement among UCBH Holdings, Inc., United
Commercial Bank and Sylvia Loh as well as certain other Executive Vice
Presidents of UCBH Holdings, Inc. or United Commercial Bank.10.4
    
    Form of Change in Control Agreement among UCBH Holdings, Inc., United
Commercial Bank and Ka Wah (Tony) Tsui as well as certain other Senior
Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank.10.5
    
    Amended UCBH Holdings, Inc. 1998 Stock Option Plan**21.0
    
    Subsidiaries of UCBH Holdings, Inc.***31.1
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Thomas S. Wu.31.2
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Jonathan H. Downing.32
    
    Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Thomas
S. Wu and Jonathan H. Downing.(b)
    
    Reports on Form 8-K On September 1, 2004, the Company filed a current report on Form 8-K,
under Item 5.05 Amendments to the Registrants Code of Ethics, or Waiver of a
Provision of the Code of Ethics for the Companys amendment on August 26, 2004
of its Code of Conduct. On July 16, 2004, the Company filed a current report on Form 8-K, under
Item 12 Results of Operations and Financial Condition, for the Companys
press release announcing second quarter 2004 financial results.   *
    
    Incorporated by reference to the exhibit of the same number from the
Companys Registration Statement on Form S-1, filed with the Securities
and Exchange Commission on July 1, 1998 (SEC File No. 333-58325).**
    
    Incorporated by reference to Exhibit 4.2 from the Companys Registration
Statement on Form S-8, filed with the Securities and Exchange Commission
on October 4, 2004 (SEC File No. 333-119518).***
    
    Incorporated by reference to the exhibit of the same number from the
Companys Form 10-K for the fiscal year ended December 31, 2002, filed
with the Securities and Exchange Commission on February 25, 2003 (SEC File
No. 0-24947).****
    
    Incorporated by reference to the exhibit of the same number from the
Companys Registration Statement on Form S-4, filed with the Securities
and Exchange Commission on July 1, 1998 (SEC File No. 333-58325).*****
    
    Incorporated by reference to the exhibit of the same number from the
Companys current report on Form 8-K, filed with the Securities and
Exchange Commission on January 29, 2003 (SEC File No. 0-24947).******
    
    Incorporated by reference to the exhibit of the same number from the
Companys Form 10-Q for the quarter ended March 31, 2004, filed with the
Securities and Exchange Commission on May 10, 2004 (SEC File No. 0-24947). Page 43




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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. UCBH HOLDINGS, INC.Date: November 8, 2004
    
    /s/ Thomas S. WuThomas S. WuChairman, President andChief Executive Officer(principal executive officer)Date: November 8, 2004
    
    /s/ Jonathan H. DowningJonathan H. DowningExecutive Vice President andChief Financial Officer(principal financial officer)
 Page 44




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EXHIBIT INDEX  10.1
    
    Employment Agreement between UCBH Holdings Inc., United Commercial Bank
and Thomas S. Wu.10.2
    
    Form of Change in Control Agreement among UCBH Holdings Inc., United
Commercial Bank and Jonathan H. Downing.10.3
    
    Form of Change in Control Agreement among UCBH Holdings, Inc., United
Commercial Bank and Sylvia Loh as well as certain other Executive Vice
Presidents of UCBH Holdings, Inc. or United Commercial Bank.10.4
    
    Form of Change in Control Agreement among UCBH Holdings, Inc., United
Commercial Bank and Ka Wah (Tony) Tsui as well as certain other Senior
Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank.31.1
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Thomas S. Wu.31.2
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, signed and dated by Jonathan H. Downing.32
    
    Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Thomas
S. Wu and Jonathan H. Downing.