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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 March 31, 2004 OR [  ]
    
    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
    
    (I.R.S. Employeror organization)
    
    Identification No.)
 711 Van Ness Avenue, San Francisco, California 94102(Address of principal executive offices)            (Zip Code)
 (415) 928-0700(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X]No [  ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes [X]No [  ] 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 May 6, 2004, the
Registrant had 45,153,126 shares of common stock outstanding.




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UCBH HOLDINGS, INC.
TABLE OF CONTENTS  
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    1Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEXEXHIBIT 3.1EXHIBIT 3.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32Exhibit 3.1Exhibit 3.2Exhibit 31.1Exhibit 31.2Exhibit 32




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Thousands) At March 31,
    
    At December 31,2004
    
    2003ASSETSCash and due from banks
    
    $
    92,906
    
    
    $
    76,786Federal Funds sold
    
    
    38,000
    
    
    
    Investment and mortgage-backed securities available for sale, at fair value
    
    
    1,201,615
    
    
    
    1,221,070Investment and mortgage-backed securities held to maturity (fair value
$318,514 at March 31, 2004 and $287,372 at December 31, 2003)
    
    
    312,803
    
    
    
    284,712Federal Home Loan Bank stock and other equity securities
    
    
    42,947
    
    
    
    41,316Loans
    
    
    3,853,049
    
    
    
    3,791,643Allowance for loan losses
    
    
    (62,304
    )
    
    
    (60,863
    )Net loans
    
    
    3,790,745
    
    
    
    3,730,780Accrued interest receivable
    
    
    22,208
    
    
    
    21,756Premises and equipment, net
    
    
    85,056
    
    
    
    84,145Goodwill
    
    
    87,437
    
    
    
    87,437Intangible assets
    
    
    10,878
    
    
    
    11,111Other assets
    
    
    34,274
    
    
    
    26,077Total assets
    
    $
    5,718,869
    
    
    $
    5,585,190LIABILITIESNoninterest-bearing deposits
    
    $
    359,576
    
    
    $
    324,615Interest-bearing deposits
    
    
    4,351,964
    
    
    
    4,158,906Total deposits
    
    
    4,711,540
    
    
    
    4,483,521Borrowings
    
    
    370,303
    
    
    
    505,542Subordinated debentures
    
    
    136,000
    
    
    
    136,000Accrued interest payable
    
    
    9,400
    
    
    
    8,346Other liabilities
    
    
    48,174
    
    
    
    37,315Total liabilities
    
    
    5,275,417
    
    
    
    5,170,724Commitments 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 March 31, 2004 and at December 31, 2003; shares issued and
outstanding 45,128,030 at March 31, 2004 and 45,038,378 at December 31, 2003
    
    
    451
    
    
    
    450Additional paid-in capital
    
    
    210,476
    
    
    
    208,990Accumulated other comprehensive income (loss)
    
    
    6,244
    
    
    
    (3,245
    )Retained earnings  substantially restricted
    
    
    226,281
    
    
    
    208,271Total stockholders equity
    
    
    443,452
    
    
    
    414,466Total liabilities and stockholders equity
    
    $
    5,718,869
    
    
    $
    5,585,190
 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 EndedMarch 31,2004
    
    2003Interest income:Loans
    
    $
    52,894
    
    
    $
    44,174Funds sold and securities purchased under agreements to resell
    
    
    14
    
    
    
    8Investment and mortgage-backed securities
    
    
    17,408
    
    
    
    18,600Total interest income
    
    
    70,316
    
    
    
    62,782Interest expense:Deposits
    
    
    14,746
    
    
    
    17,891Short-term borrowings
    
    
    606
    
    
    
    212Subordinated debentures
    
    
    1,953
    
    
    
    2,009Long-term borrowings
    
    
    3,471
    
    
    
    3,371Total interest expense
    
    
    20,776
    
    
    
    23,483Net interest income
    
    
    49,540
    
    
    
    39,299Provision for loan losses
    
    
    2,174
    
    
    
    990Net interest income after provision for loan losses
    
    
    47,366
    
    
    
    38,309Noninterest income:Commercial banking fees
    
    
    1,725
    
    
    
    1,549Service charges on deposits
    
    
    616
    
    
    
    507Gain on sale of securities
    
    
    3,861
    
    
    
    1,031Gain on sale of loans
    
    
    511
    
    
    
    517Miscellaneous income
    
    
    144
    
    
    
    108Total noninterest income
    
    
    6,857
    
    
    
    3,712Noninterest expense:Personnel
    
    
    12,915
    
    
    
    11,125Occupancy
    
    
    1,546
    
    
    
    1,191Data processing
    
    
    1,294
    
    
    
    1,121Furniture and equipment
    
    
    1,029
    
    
    
    767Professional fees and contracted services
    
    
    1,523
    
    
    
    1,665Deposit insurance
    
    
    205
    
    
    
    164Communication
    
    
    296
    
    
    
    239Intangible amortization
    
    
    233
    
    
    
    595Miscellaneous expense
    
    
    3,773
    
    
    
    2,933Total noninterest expense
    
    
    22,814
    
    
    
    19,800Income before taxes
    
    
    31,409
    
    
    
    22,221Income tax expense
    
    
    11,590
    
    
    
    8,293Net income
    
    $
    19,819
    
    
    $
    13,928Basic earnings per share
    
    $
    0.44
    
    
    $
    0.33Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.32Dividends declared per share
    
    $
    0.04
    
    
    $
    0.03
 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 Three Months EndedMarch 31,2004
    
    2003Operating activities:Net income
    
    $
    19,819
    
    
    $
    13,928Adjustments to reconcile net income to net cash provided by (used for)
operating activities:Provision for loan losses
    
    
    2,174
    
    
    
    990Amortization of purchase price adjustments
    
    
    (149
    )
    
    
    (1,397
    )Amortization of core deposit intangible
    
    
    233
    
    
    
    595Depreciation and amortization
    
    
    1,360
    
    
    
    1,255(Increase) decrease in accrued interest receivable
    
    
    (546
    )
    
    
    1,457(Increase) decrease in other assets
    
    
    (14,907
    )
    
    
    2,411Increase (decrease) in accrued interest payable
    
    
    1,054
    
    
    
    (31
    )Increase in other liabilities
    
    
    10,401
    
    
    
    32,689Gain on sale of loans and securities
    
    
    (4,372
    )
    
    
    (1,548
    )Other, net
    
    
    344
    
    
    
    2,854Net cash provided by operating activities
    
    
    15,411
    
    
    
    53,203Investing activities:Investments and mortgage-backed securities, available for sale:Principal payments and maturities
    
    
    60,366
    
    
    
    144,527Purchases
    
    
    (365,179
    )
    
    
    (104,611
    )Sales
    
    
    386,341
    
    
    
    106,910Called
    
    
    54,946
    
    
    
    34,635Investments and mortgage-backed securities, held to maturity:Principal payments and maturities
    
    
    4,792
    
    
    
    6Purchases
    
    
    (32,941
    )
    
    
    (87,385
    )FHLB Stock redemption
    
    
    
    
    
    
    9,554Other investing activities, net
    
    
    (899
    )
    
    
    (284
    )Loans originated and purchased, net of principal collections
    
    
    (193,311
    )
    
    
    (162,917
    )Proceeds from the sale of loans
    
    
    33,801
    
    
    
    45,566Purchases of premises and other equipment
    
    
    (2,271
    )
    
    
    (1,116
    )Net cash used in investment activities
    
    
    (54,355
    )
    
    
    (15,115
    )Financing activities:Net increase in demand deposits, NOW, money market and savings accounts
    
    
    110,861
    
    
    
    57,839Net increase (decrease) in time deposits
    
    
    117,192
    
    
    
    (37,960
    )Net decrease in short-term borrowings
    
    
    (129,124
    )
    
    
    (57,920
    )Repayments on long-term borrowings
    
    
    (6,000
    )
    
    
    (4,000
    )Proceeds from stock option exercises
    
    
    1,486
    
    
    
    565Payment of cash dividend on common stock
    
    
    (1,351
    )
    
    
    (1,050
    )Net cash provided by (used in) financing activities
    
    
    93,064
    
    
    
    (42,526
    )Net increase (decrease) in cash and cash equivalents
    
    
    54,120
    
    
    
    (4,438
    )Cash and cash equivalents at beginning of period
    
    
    76,786
    
    
    
    58,954Cash and cash equivalents at end of period
    
    $
    130,906
    
    
    $
    54,516Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    20,250
    
    
    $
    23,514Cash paid during the period for income taxes
    
    
    284
    
    
    
    3,638Supplemental schedule of non-cash investing and financing activities:Loans securitized
    
    
    98,473
    
    
    
    49,569
 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 (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 accounting principles generally accepted 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
presentation 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. 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. 46(R), Consolidation of Variable Interest Entities (FIN
46R), issued by the FASB in December of 2003. All significant intercompany
transactions and balances have been eliminated in consolidation. Operating
results for the three-month period ended March 31, 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 Financial Accounting Standards Board (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 EndedMarch 31,2004
    
    2003(Dollars in Thousands, ExceptEarnings Per Share)Net income:As reported
    
    $
    19,819
    
    
    $
    13,928Deduct: Total stock-based employee compensation
expense determined under fair value based method of
all awards, net of related tax effects
    
    
    (1,292
    )
    
    
    (1,017
    )Pro forma net income
    
    $
    18,527
    
    
    $
    12,911Basic earnings per share:As reported
    
    $
    0.44
    
    
    $
    0.33Pro forma
    
    $
    0.41
    
    
    $
    0.31Diluted earnings per share:As reported
    
    $
    0.42
    
    
    $
    0.32Pro forma
    
    $
    0.39
    
    
    $
    0.29
 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 months ended March 31, 2004, and 2003: For the Three Months EndedMarch 31,2004
    
    2003Dividend yield
    
    
    0.42
    %
    
    
    0.42
    %Volatility
    
    
    26.03
    %
    
    
    17.07
    %Risk-free interest rate
    
    
    4.04
    %
    
    
    3.12
    %Expected lives (years)
    
    
    7.4
    
    
    
    6.5
 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 controlling financial interest in one entity by
another exists. 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 the ability to make
decisions about the entitys activities, the obligation to absorb the expected
losses of the entity, and the right to receive the expected residual returns of
the entity. At December 31, 2003, the Company adopted FIN 46R. As disclosed in Note
1, FIN 46R issued by the FASB in December of 2003, clarifies 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.
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 provided interim guidance that these securities may
continue to be included in the Companys Tier I capital. The ultimate decision
of the banking regulators is unknown at this time. If regulatory requirements
had required
exclusion of these securities from Tier I capital, the Company would still
have been well capitalized at March 31, 2004. The Banks Tier I capital would
be unaffected as the trusts and their securities have been issued at the
holding company level. Page 6




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Derivative Instruments and Hedging Activities In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities (SFAS No. 149). The
provisions of SFAS No. 149 that relate to SFAS No. 133 and No. 138
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. In addition, provisions of SFAS No. 149 which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. The changes in SFAS No.
149 improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS
133. SFAS No. 133 and No. 138, clarify when a derivative contains a financing
component, amend the definition of an underlying derivative instrument to
conform it to language used in FIN 45, and amend certain other existing
pronouncements. Those changes will result in more consistent reporting of
contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, except as stated above and for hedging relationships designated
after June 30, 2003. In addition, except as stated above, all provisions of
SFAS No. 149 should be applied prospectively. The Company adopted SFAS No. 149 on July 1, 2003. The adoption did not a
have a material impact on our consolidated financial statements. 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 loan or debt securities acquired from business combinations 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. SOP 03-3 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. Page 7




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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 in 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 expect the adoption of SOP 03-3
to 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 non-interest
bearing components of Cash and Due from Banks on the dates indicated (dollars
in thousands): At March 31,
    
    At December 31,2004
    
    2003Interest-bearing
    
    $
    19,323
    
    
    $
    13,899Non-interest bearing
    
    
    73,583
    
    
    
    62,887Total Cash and Due From Banks
    
    $
    92,906
    
    
    $
    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
March 31, 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 for the
three months ended March 31, 2003 as though FCB had been acquired as of January
1, 2003 follow (dollars in thousands, except earnings per share): For the Three Months EndedMarch 31, 2003Net interest income
    
    $
    41,898Net income
    
    
    14,587Basic earnings per share
    
    $
    0.33Diluted earnings per share
    
    
    0.31
 There were no additions to goodwill during the first quarter of 2004. At
both March 31, 2004 and December 31, 2003, the balance of goodwill totaled
$87.4 million. Other than goodwill, the Company has no intangible assets with
indefinite lives. Intangible assets with finite lives, consisting primarily of
core deposit intangibles, are amortized over their estimated period of benefit;
such amortization expense was $232,832 and $594,714 for the three months ended
March 31, 2004 and 2003, respectively. There was no indication of possible
impairment in the Companys goodwill and intangible assets for the three months
ended March 31, 2004. The Company will complete its annual goodwill impairment
test in the fourth quarter of 2004. Page 8




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##### Table of Contents



The net carrying amount of intangible assets and the associated
accumulated amortization are as follows: Carrying
    
    AccumulatedAmount
    
    Amortization(Dollars in Thousands)March 31, 2004
    
    $
    10,878
    
    
    $
    (2,222
    )December 31, 2003
    
    
    11,111
    
    
    
    (1,989
    )
 5. Earnings per Share The following are the basic and diluted earnings per share for the periods
then ended: Three Months Ended March 31, 2004
    
    Three Months Ended March 31, 2003 (1)Income
    
    Shares
    
    Per Share
    
    Income
    
    Shares
    
    Per Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    Amount(Dollars in Thousands, Except Per Share Amounts)Basic:Net income
    
    $
    19,819
    
    
    
    45,099,594
    
    
    $
    0.44
    
    
    $
    13,928
    
    
    
    42,075,342
    
    
    $
    0.33Diluted:Dilutive potential common shares.
    
    
    
    
    
    
    2,383,525
    
    
    
    
    
    
    
    
    
    
    
    1,970,890Net income and assumed conversion
    
    $
    19,819
    
    
    
    47,483,119
    
    
    $
    0.42
    
    
    $
    13,928
    
    
    
    44,046,232
    
    
    $
    0.32
  (1)
    
    Effective April 8, 2003, the Company completed a two-for-one stock split. Accordingly, the financial statements for the three months ended March
31, 2003 presented have been restated to reflect the effect of the stock split. 6. 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 March
31, 2004, total comprehensive income was $29.3 million, an increase of $13.2
million compared to the three months ended March 31, 2003. Net income for the
three months ended March 31, 2004, was $19.8 million, and net unrealized gains
on available-for-sale securities increased by $9.5 million. For the
corresponding period of 2003, net income was $13.9 million, and net unrealized
gains on available-for-sale securities increased by $2.1 million. 7. 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 customer 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. Page 9




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##### Table of Contents



The following table sets forth the contractual or notional amounts of
derivative financial instruments and financial instruments with
off-balance-sheet risk as of March 31, 2004 and December 31, 2003 (dollars in
thousands): At March 31,
    
    At December 31,2004
    
    2003(Unaudited)Financial instruments whose contract amounts
represent credit risk:Commitments to extend credit:Consumer (including residential mortgage)
    
    $
    62,532
    
    
    $
    59,751Commercial (excluding construction)
    
    
    320,838
    
    
    
    279,433Construction
    
    
    179,836
    
    
    
    207,601Letters of credit
    
    
    38,493
    
    
    
    39,484Foreign exchange contracts receivable
    
    
    78,417
    
    
    
    17,121Foreign exchange contracts payable
    
    
    78,222
    
    
    
    17,122
 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 This report on Form 10-Q may include projections or other forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 regarding future events or the future financial performance of the
Company or the Companys wholly-owned subsidiary, the Bank. Such
forward-looking statements include without limitation, statements containing
the words confident that, believes, plans, expects, anticipates,
projects and words of similar import and involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the Bank to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things:  
    
    general economic and business conditions in those areas in
which the Company or the Bank operates;
    
    demographic changes;
    
    competition;
    
    fluctuations in market conditions, including interest or foreign exchange rates;
    
    the ability of the Bank to assimilate recent acquisitions and
to open new branches successfully; Page 10




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
    
    changes in business strategies;
    
    changes in governmental regulations;
    
    changes in credit quality; and
    
    other risks and uncertainties including those detailed in the
documents the Company files from time to time with the Securities
and Exchange Commission (SEC). 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 months ended March 31,
2004 and 2003, and financial condition at March 31, 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. CORPORATE DEVELOPMENTS The Bank plans to expand its branch presence in key target markets during
2004. The Bank has received approval to open a new branch in Torrance,
California, the Banks sixteenth in the Southern California region, and expects
to have the branch open by the end of the second quarter of 2004. A second
branch in the region is also planned with lease negotiations currently in
process and an anticipated opening date in the third quarter of 2004.
Recently, the Bank signed a lease for a second branch in New York City. The
Bank is currently in the process of pursuing a lease for a third greater New
York location. During the first quarter of 2004, the Companys wholly owned subsidiary
UCB Investment Services (UCBIS) commenced business. UCBIS is a registered
broker-dealer with the SEC and a member of the NASD and SIPC. UCBIS will act 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
will also sell fixed and variable annuities and covered options for its
customers. UCBIS is registered with the MSRB. UCBIS will not have custody or
possession of customer funds or securities. Customer accounts will be carried
on a fully-disclosed basis at UCBISs clearing firm National Financial
Services, LLC. CRITICAL ACCOUNTING POLICIES 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 accounting principles generally accepted 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. 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 11




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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 obligor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 will 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
potential 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. 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. Losses not
anticipated or greater than anticipated could result if the Company were forced
to sell one of these assets, subsequently discovering that its estimate of fair
value had been too high. 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. Goodwill and Other Intangible Assets:The Company establishes goodwill
and other intangible assets 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 and other intangible assets
each year 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. 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, Page 12




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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. A valuation allowance is
established, when necessary, to reduce 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 year 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 1 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, 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. Net Income. The consolidated net income of the Company during the three
months ended March 31, 2004, increased by $5.9 million, or 42.3%, to $19.8
million, compared to $13.9 million for the corresponding period of the
preceding year. The annualized return on average equity (ROE) and average
assets (ROA) ratios for the three months ended March 31, 2004, were 18.45%
and 1.42%, respectively. These amounts compare with annualized ROE and ROA
ratios of 19.22% and 1.16%, respectively, for the three months ended March 31,
2003. These ratios improved primarily due to higher net income; the increase
in net income was primarily due to an increase in net interest income during
the current period as compared to the corresponding period in the prior year.
The efficiency ratio was 40.45% for the three months ended March 31, 2004,
compared with 46.03% for the corresponding period of the preceding year.
Diluted earnings per common share on a post-split basis were $0.42 for the
three months ended March 31, 2004, compared with $0.32 for the comparable
period of the preceding year. Net Interest Income. Net interest income before provision for loan losses
of $49.5 million for the three months ended March 31, 2004, represented a $10.2
million, or 26.1% increase over net interest income of $39.3 million for the
three months ended March 31, 2003. 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 49 basis points from 1.79% for
the three months ended March 31, 2003 to 1.30% for the three months ended March
31, 2004. This savings was partially offset by a 25 basis point decrease in
average loan yields from 5.76% for the three Page 13




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##### Table of Contents



months ended March 31, 2003 to
5.51% for the comparable period in 2004. The decline in all areas reflects the
decline in the overall rate environment from the prior year. Loan yield
reflects repricing of adjustable-rate loans resulting from reductions in market
interest rate indices, plus the impact of accelerated prepayments on
higher-yielding loans due to the lower market interest rates. The securities
yield decreased from 4.83% for the three months ended March 31, 2003 to 4.38%.
The decline in the securities yield reflects the prepayments of higher-yielding
securities and their replacement with lower-yielding securities due to the low
market interest rate environment and the sale of higher-yielding long-term
fixed-rate securities. Interest on earning assets increased $7.5 million to $70.3 million for the
three months ended March 31, 2004, up from $62.8 million for the three months
ended March 31, 2003. This increase resulted primarily from organic commercial
loan growth, partially offset by a decrease in interest rates. The Company had
a $2.7 million decrease in interest expense, to $20.8 million for the three
months ended March 31, 2004, down from $23.5 million for the three months ended
March 31, 2003. The decrease reflects reductions in overall market interest
rates on interest-bearing deposits. Average outstanding loans increased to $3.84 billion for the three months
ended March 31, 2004, from $3.07 billion for the corresponding period of 2003,
an increase of $744.3 million, or 25.2%, as a result of the Banks continued
focus on commercial lending activities, and the First Continental Bank (FCB)
acquisition. Average commercial loan balances increased $806.1 million to
$3.51 billion for the three months ended March 31, 2004, up from $2.71 billion
for the three months ended March 31, 2003. Average consumer loans decreased
$31.8 million to $328.2 million for the three months ended March 31, 2004, down
from $360.0 million for the three months ended March 31, 2003, primarily due to
the Banks securitization activity in the residential mortgage portfolio in the
fourth quarter of 2004. New loan commitments of $503.4 million for the three
months ended March 31, 2004 comprised $456.8 million in commercial and $46.6
million in consumer commitments. As of the March 31, 2004 the loan pipeline
approximated $1.0 billion, which was comprised of $934.2 million for commercial
loans and $53.4 million for consumer loans. Average securities increased slightly to $1.59 billion for the three
months ended March 31, 2004, up from $1.54 billion for the same period of 2003,
an increase of $47.4 million, or 3.1%. This increase was primarily due to
purchases that occurred early in the quarter. Securities runoff which
accelerated with the lower market interest rate environment was substantially
replaced with new securities purchases. During the first three months of 2004,
the Company also sold securities with an aggregate principal balance of $382.5
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 is to replace securities that have high
prepayment and extension risk with shorter-dated securities with less
prepayment and extension risk. Average total deposits increased $543.3 million to $4.54 billion at March
31, 2004, up from $3.99 billion at the same time last year, a result of the
Companys ongoing focus on the generation of commercial and consumer demand
deposits and the FCB acquisition. Average interest-bearing deposits increased
to $4.20 billion for the three months ended March 31, 2004, up from $3.74
billion for the corresponding period of the prior year, and average
noninterest-bearing deposits increased to $337.1 million for the three months
ended March 31, 2004, up from $256.6 million for the corresponding period of
the prior year. Net Interest Margin. The net interest margin, calculated on a tax
equivalent basis, was 3.74% for the three months ended March 31, 2004, as
compared to 3.48% 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 loans while decreasing the cost of deposits. Page 14




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##### Table of Contents



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 Three months Ended
    
    For the Three months EndedMarch 31, 2004
    
    March 31, 2003(Dollars in Thousands)Interest
    
    
    
    
    
    InterestAverage
    
    Income or
    
    Average
    
    Average
    
    Income or
    
    AverageBalance
    
    Expense
    
    Yield/Cost
    
    Balance
    
    Expense
    
    Yield/CostInterest-earning assets:Loans (1)
    
    $
    3,841,443
    
    
    $
    52,894
    
    
    
    5.51
    %
    
    $
    3,067,193
    
    
    $
    44,174
    
    
    
    5.76
    %Securities
    
    
    1,589,275
    
    
    
    17,408
    
    
    
    4.38
    
    
    
    1,541,838
    
    
    
    18,600
    
    
    
    4.83Other
    
    
    3,377
    
    
    
    14
    
    
    
    1.78
    
    
    
    2,605
    
    
    
    8
    
    
    
    1.23Total interest-earning assets
    
    
    5,434,095
    
    
    
    70,316
    
    
    
    5.18
    
    
    
    4,611,636
    
    
    
    62,782
    
    
    
    5.45Noninterest-earning assets
    
    
    165,191
    
    
    
    
    
    
    
    
    
    
    
    199,719
    
    
    
    
    
    
    
    Total assets
    
    $
    5,599,286
    
    
    $
    70,316
    
    
    
    5.02
    
    
    $
    4,811,355
    
    
    $
    62,782
    
    
    
    5.22Interest-bearing liabilities:Deposits:NOW, checking, and money market accounts
    
    $
    739,857
    
    
    $
    1,766
    
    
    
    0.95
    
    
    $
    554,027
    
    
    $
    1,717
    
    
    
    1.24Savings accounts
    
    
    874,338
    
    
    
    1,672
    
    
    
    0.77
    
    
    
    705,172
    
    
    
    1,850
    
    
    
    1.05Time deposits
    
    
    2,585,750
    
    
    
    11,308
    
    
    
    1.75
    
    
    
    2,477,917
    
    
    
    14,324
    
    
    
    2.31Total deposits
    
    
    4,199,945
    
    
    
    14,746
    
    
    
    1.40
    
    
    
    3,737,116
    
    
    
    17,891
    
    
    
    1.91Borrowings
    
    
    457,845
    
    
    
    4,077
    
    
    
    3.56
    
    
    
    329,905
    
    
    
    3,583
    
    
    
    4.34Guaranteed preferred beneficial interests in
junior subordinated debentures
    
    
    136,000
    
    
    
    1,953
    
    
    
    5.74
    
    
    
    136,000
    
    
    
    2,009
    
    
    
    5.91Total interest-bearing liabilities
    
    
    4,793,790
    
    
    
    20,776
    
    
    
    1.73
    
    
    
    4,203,021
    
    
    
    23,483
    
    
    
    2.23Noninterest-bearing deposits
    
    
    337,139
    
    
    
    
    
    
    
    
    
    
    
    256,642Other noninterest-bearing liabilities
    
    
    38,790
    
    
    
    
    
    
    
    
    
    
    
    61,827Stockholders equity
    
    
    429,567
    
    
    
    
    
    
    
    
    
    
    
    289,865Total liabilities and stockholders equity
    
    $
    5,599,286
    
    
    
    
    
    
    
    
    
    
    $
    4,811,355Net interest income/net interest
rate spread (2) (4)
    
    
    
    
    
    $
    49,540
    
    
    
    3.44
    %
    
    
    
    
    
    $
    39,299
    
    
    
    3.21
    %Net interest-earning assets/net
interest margin (3) (4)
    
    $
    640,305
    
    
    
    
    
    
    
    3.65
    %
    
    $
    408,615
    
    
    
    
    
    
    
    3.41
    %Ratio of interest-earning assets to interest-bearing
liabilities
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.10
    x
  (1)
    
    Non accrual loans are included in the table for computation purposes, but the foregone 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)
    
    Net interest margin represents net interest income divided by average interest-earning assets.(4)
    
    Calculated on a nontax equivalent basis. Provision for Loan Losses. The Company uses a systematic methodology to
calculate the allowance for loan losses. 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. Page 15




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For the three months ended March 31, 2004, our provision for loan losses
was $2.2 million, an increase of $1.2 million, compared to a provision of $1.0
million for the corresponding period of 2003. The increase in the provision
for loan loss was a result of the growth in the commercial loan portfolio and
the credit risk inherent in the portfolio. The provision for loan losses for
the three months ended March 31, 2004, resulted from the following factors:  
    
    Loan Growth and Portfolio Composition:Our overall loan portfolio
grew from $3.10 billion at March 31, 2003, to $3.85 billion at March
31, 2004, an increase of $757.4 million or 24.5%. As a result of the
Banks continued focus on commercial lending activities, loan growth
remained concentrated in the Banks commercial portfolio, which totaled
$3.52 billion at March 31, 2004. We continued to focus on commercial
loan commitments during the quarter. Total commercial loan commitments
were $456.8 million during the three months ended March 31, 2004,
compared with commitments of $299.7 million for the corresponding
quarter of 2003. The concentration of commercial lending was 91.1% of
total loans compared to 88.6% in the corresponding period of 2003. Our
allowance for loan loss methodology attributes higher loss factors to
commercial loans, reflecting the higher inherent risk in that
portfolio.
    
    Asset Quality:Criticized loans, which are defined as those we
classify as risk-graded Special Mention, Substandard, Doubtful, or
Loss, were less than 2.0% of total loans at March 31, 2004 and 2003.
Nonaccrual loans increased from $5.9 million at March 31, 2003, to $6.5
million at March 31, 2004. The increase reflects two construction
loans on one project that were over 90 days past due. Net charge-offs
of $733,000 for the three months ended March 31, 2004, increased as
compared to net charge-offs of $128,000 for the corresponding period of
2003. The charge-offs in the three months ended March 31, 2004 and
2003 related primarily to commercial business lending.
    
    Management Judgment:To derive the provision for loan losses during
the three months ended March 31, 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. Noninterest Income. Noninterest income for the three months ended March
31, 2004, was $6.9 million compared to $3.7 million for the corresponding
quarter of 2003, an increase of $3.1 million, or 84.7%, primarily as a result
of an increase in commercial banking fees and gains from sale of loans and
securities. Commercial banking fees increased 11.4% to $1.7 million for the
three months ended March 31, 2004, as compared to $1.5 million for the
corresponding period of 2003, a result of increased commercial banking
activities, primarily in trade finance business. Gains on sale of loans and
securities increased by 182.4% to $4.4 million for the three months ended March
31, 2004, compared with $1.5 million for the corresponding period of 2003.
Gains from sale of SBA loans for the three months ended March 31, 2004 were
$510,700 compared to $853,000 for the corresponding period in 2003. Gains
recognized on sale of securities were $3.9 million and $1.0 million for the
three months ended March 31, 2004 and 2003, respectively. Noninterest Expense. Noninterest expense was $22.8 million for the three
months ended March 31, 2004, as compared to $19.8 million for the corresponding
quarter of 2003. Personnel expenses increased to $12.9 million for the three
months ended March 31, 2004, up from $11.1 million for the corresponding period
of 2003, an increase of $1.8 million, or 16.1%. This increase is primarily due
to the additional staffing resulting from the FCB acquisition and staffing
required to support continued growth of the Banks commercial banking business.
Occupancy expenses of $1.5 million are net of rental income of $1.5 million
for the three months ended March 31, 2004. Occupancy expenses of $1.2 million
are net of rental income of $1.6 million for the corresponding period of 2003.
The increased occupancy expenses resulted from the FCB acquisition and branch
expansion. Professional fees and contracted services were $1.5 million for the
three months ended March 31, 2004, compared with $1.7 million for the
corresponding period of 2003. Included in noninterest expense is core deposit
intangible amortization of $233,000 for the three months ended March 31, 2004,
compared with $595,000 for the corresponding period of 2003. The core deposit
intangible was recorded in Page 16




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connection with the acquisitions of Bank of Canton
of California (BCC), the New York branch, and FCB. Miscellaneous expenses of
$3.8 million for the three months ended March 31, 2004 increased $840,000, or
28.6%, compared with $2.9 million for the corresponding quarter of 2003. The
increase primarily related to additional expenses as a result of the FCB
acquisition and overall growth. Provision for Income Taxes. The provision for income taxes was $11.6
million and $8.3 million on the income before taxes of $31.4 million and $22.2
million for the three months ended March 31, 2004 and 2003, respectively. The
effective tax rate for the quarter ended March 31, 2004, was 36.90%, compared
with 37.32% for the quarter ended March 31, 2003. These rates are lower than
the combined federal and state statutory rate of 42.0% primarily due to federal
and state tax credits and incentives, and tax-exempt income. FINANCIAL CONDITION The Company experienced continued asset and core deposit growth during the
first quarter of 2004. Total assets at March 31, 2004, were $5.72 billion, an
increase of $133.7 million, up from $5.59 billion at December 31, 2003. During the three months ended March 31, 2004, total loans increased by
$61.4 million, or 1.62%, to $3.85 billion, up from $3.79 billion at December
31, 2003. This growth resulted from an organic increase in commercial loans
resulting from the Banks continuing focus on originating such loans. Loan
growth prior to total internal securitization of $98.5 million of multifamily
loans was $159.9 million, or 16.9% annualized, in the first quarter of 2004.
Total commercial loans grew to $3.52 billion at March 31, 2004, up from $3.48
billion at December 31, 2003, as a result of new commercial loan commitments of
$456.8 million during the quarter, offset by principal repayments and the
internal securitization of multifamily loans. Consumer loans increased to
$343.1 million at March 31, 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; $503.4 million for the three months ended
March 31, 2004, which was composed of $456.8 million in commercial loan
commitments and $46.6 million in consumer commitments. Securities growth
(including the available for sale and held to maturity portfolios) was
essentially flat, showing a slight increase of $8.6 million, or 0.6%, to $1.51
billion consistent with the December 31, 2003 balance. This was primarily the
result of purchases of $398.0 million and internal securitizations of $98.5
million, offset by sales of $382.5 million and principal repayments and
securities calls of $116.7 million during the first quarter of 2004. 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 Company
will continue to monitor changing market conditions and actively manage its
securities portfolio. Total past due loans were 0.56% of total loans at March 31, 2004, compared
with 0.86% at December 31, 2003. Nonperforming assets were $6.5 million, or
0.11%, of total assets at March 31, 2004, compared with nonperforming assets of
$5.9 million, or 0.10%, of total assets at December 31, 2003. The allowance
for loan losses was $62.3 million at March 31, 2004, a net increase of $1.4
million from $60.9 million at December 31, 2003. The increase in the allowance
for loan losses reflected the growth in the loan portfolio during the three
months ended March 31, 2004 and the increased concentration in commercial
loans. Page 17




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##### Table of Contents



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 March 31, 2004
    
    At December 31, 2003Amount
    
    %
    
    Amount
    
    %(Dollars in Thousands)Commercial:Secured by real estate-nonresidential
    
    $
    1,746,960
    
    
    
    45.25
    %
    
    $
    1,724,179
    
    
    
    45.37
    %Secured by real estate-multifamily
    
    
    1,164,552
    
    
    
    30.16
    
    
    
    1,162,565
    
    
    
    30.59Construction
    
    
    275,774
    
    
    
    7.14
    
    
    
    293,875
    
    
    
    7.74Commercial business
    
    
    330,531
    
    
    
    8.56
    
    
    
    302,159
    
    
    
    7.95Total commercial
    
    
    3,517,817
    
    
    
    91.11
    
    
    
    3,482,778
    
    
    
    91.65Consumer:Residential mortgage (one to four family)
    
    
    300,502
    
    
    
    7.79
    
    
    
    274,392
    
    
    
    7.22Other
    
    
    42,556
    
    
    
    1.10
    
    
    
    43,117
    
    
    
    1.13Total consumer
    
    
    343,058
    
    
    
    8.89
    
    
    
    317,509
    
    
    
    8.35Total gross loans
    
    
    3,860,875
    
    
    
    100.00
    %
    
    
    3,800,287
    
    
    
    100.00
    %Net deferred loan origination fees
    
    
    (7,826
    )
    
    
    
    
    
    
    (8,644
    )Loans
    
    
    3,853,049
    
    
    
    
    
    
    
    3,791,643Allowance for loan losses
    
    
    (62,304
    )
    
    
    
    
    
    
    (60,863
    )Net loans
    
    $
    3,790,745
    
    
    
    
    
    
    $
    3,730,780
 The Company continues to emphasize production of commercial real estate
and commercial business loans and to place reduced emphasis on the origination
volume of residential mortgage (one to four family) loans. The Company
originates substantially all of its loans for portfolio retention. The Company
also 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 March 31, 2004, and December 31, 2003. 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,
fixed rate for terms of 15 or 30 years, or have interest rates that are fixed
for a period, typically five years, then generally repricing semiannually or
annually. As a result of the change of focus to commercial lending, adjustable-rate
loans increased to $3.41 billion, an increase of $150.9 million, or 4.6%, from
$3.26 billion at December 31, 2003. Adjustable-rate loans represented 88.4% of
gross loans at March 31, 2004, compared with 85.8% of gross loans at December
31, 2003. Fixed-rate loans decreased by $90.2 million, or 16.8%, to $446.8
million, or 11.6% of gross loans at March 31, 2004, compared with $537.0
million, or 14.2% of the gross loans at December 31, 2003. At March 31, 2004,
adjustable-rate loans included $672.2 million of intermediate fixed-rate loans
compared with $563.6 million at December 31, 2003, an increase of $108.6
million, or 19.3%. Page 18




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##### Table of Contents



The following table reflects the Banks new loan commitments during the
periods indicated: For the Three months EndedMarch 31,2004
    
    2003(Dollars in Thousands)Commercial:Secured by real estate-nonresidential (1)
    
    $
    142,836
    
    
    $
    98,244Secured by real estate-multifamily (1)
    
    
    155,014
    
    
    
    114,569Construction
    
    
    56,945
    
    
    
    43,632Commercial business
    
    
    102,013
    
    
    
    43,229Total commercial loans
    
    
    456,808
    
    
    
    299,674Consumer:Residential mortgage (one to four family) (1)
    
    
    37,746
    
    
    
    31,919Home equity and other
    
    
    8,895
    
    
    
    8,591Total consumer loans
    
    
    46,641
    
    
    
    40,510Total new commitments
    
    $
    503,449
    
    
    $
    340,184
  (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 exchanges either multifamily or residential
mortgage (one to four family) loans for Fannie Mae (FNMA) securities.
Residential mortgage (one to four family) loans are generally included in the
50% risk weight for risk-based capital purposes, whereas 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. These internal securitizations do not have a material cash impact to the
Company, since selected loans from the Companys loan portfolio are exchanged
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 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. 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 three months ended March 31, 2004, the Company internally
securitized $98.5 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. Page 19




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Following is the Banks risk elements table: At March 31,
    
    At December 31,2004
    
    2003(Dollars in Thousands)Nonaccrual loans:CommercialSecured by real estate-nonresidential
    
    $
    
    
    
    $
    Secured by real estate-multifamily
    
    
    
    
    
    
    Construction
    
    
    4,928
    
    
    
    5,102Commercial business
    
    
    1,601
    
    
    
    631Total commercial
    
    
    6,529
    
    
    
    5,733ConsumerResidential mortgage (one to four family)
    
    
    
    
    
    
    124Other
    
    
    
    
    
    
    Total consumer
    
    
    
    
    
    
    124Total nonaccrual loans
    
    
    6,529
    
    
    
    5,857Other real estate owned (OREO)
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    6,529
    
    
    $
    5,857Nonperforming assets to total assets
    
    
    0.11
    %
    
    
    0.10
    %Nonaccrual loans to total loans
    
    
    0.17
    
    
    
    0.15Nonperforming assets to total loans and OREO
    
    
    0.17
    
    
    
    0.15Loans
    
    $
    3,853,049
    
    
    $
    3,791,643Gross income not recognized on nonaccrual loans
    
    
    424
    
    
    
    363Accruing loans contractually past due 90 days or more
    
    
    1,114
    
    
    
    1,469Loans classified as troubled debt restructurings but not included above
    
    
    9,054
    
    
    
    9,094
 Total nonperforming assets were $6.5 million at March 31, 2004, an
increase of $0.7 million, from $5.9 million at December 31, 2003. The increase
was attributable to two construction loans to the same borrower on the same
property that were over 90 days past due. 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 March 31, 2004, or
December 31, 2003. The $9.1 million trouble debt restructurings in the table above represents
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 $1.1 million loan to the same obligor
on the same property during the quarter. The $1.1 million loan is included in
the nonaccrual construction loans balance in the table above. The obligor may
make additional draws under this facility, but such draws would not have a
material impact on the Companys nonperforming assets. 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 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. 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 its obligations. In assessing the risk grading of a particular
loan, the factors considered include the obligor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, Page 20




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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 will 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 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. The following table sets forth information concerning the Banks allowance
for loan losses for the periods indicated: For the Three months EndedMarch 31,2004
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    60,863
    
    
    $
    48,865Provision for loan losses
    
    
    2,174
    
    
    
    990Loans charged off
    
    
    (748
    )
    
    
    (144
    )Recoveries
    
    
    15
    
    
    
    16Balance at end of period
    
    $
    62,304
    
    
    $
    49,727Allowance for loan losses to loans
    
    
    1.62
    %
    
    
    1.61
    %Annualized net charge-offs to average loans
    
    
    0.08
    %
    
    
    0.02
    %
 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 the Asset and
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. Page 21




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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. Under this
strategy, the Company began selling AFS securities which had the highest
exposure to prepayment and extension risk, and purchased shorter-dated
securities with reduced prepayment and extension risk. The securities portfolio (including available for sale and held to
maturity) increased slightly by $8.6 million, or 0.6%, to $1.51 billion during
the three months ended March 31, 2004, consistent with the December 31, 2003
balance. The increase in securities is a result of purchases of $398.0 million
and $98.5 million of FNMA securities received in the internal securitization of
multifamily loans, offset by sales of $382.5 million and principal repayments
and securities calls of $116.7 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
borrowing. Securities are generally pledged as collateral for any such
borrowings. During the three months ended March 31, 2004, the Company increased its
held-to-maturity portfolio to $312.8 million from $284.7 million at December
31, 2003. This increase of $28.1 million 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. Page 22




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##### Table of Contents



The following table presents the Companys securities portfolio on the
dates indicated: At March 31, 2004
    
    At December 31, 2003Amortized
    
    Market
    
    Amortized
    
    MarketCost
    
    Value
    
    Cost
    
    Value(Dollars in Thousands)Investment securities available for sale:Trust Preferred Securities
    
    $
    13,189
    
    
    $
    12,960
    
    
    $
    13,189
    
    
    $
    12,795Federal Agency Notes
    
    
    182,585
    
    
    
    181,975
    
    
    
    222,309
    
    
    
    218,753Foreign Debt Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed Securities
    
    
    3,623
    
    
    
    3,545
    
    
    
    16,426
    
    
    
    16,285Municipals
    
    
    90
    
    
    
    90
    
    
    
    90
    
    
    
    90Domestic Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    5,153
    
    
    
    5,148Commercial Paper
    
    
    
    
    
    
    
    
    
    
    9,991
    
    
    
    9,991Total investment securities available for sale
    
    
    199,487
    
    
    
    198,570
    
    
    
    267,158
    
    
    
    263,062Mortgage-backed securities available for sale:FNMA
    
    
    429,880
    
    
    
    437,131
    
    
    
    440,835
    
    
    
    440,453GNMA
    
    
    79,997
    
    
    
    80,001
    
    
    
    79,103
    
    
    
    78,842FHLMC
    
    
    326,698
    
    
    
    329,154
    
    
    
    275,882
    
    
    
    273,940Other
    
    
    154,787
    
    
    
    156,758
    
    
    
    163,687
    
    
    
    164,773Total mortgage-backed securities available for sale
    
    
    991,362
    
    
    
    1,003,044
    
    
    
    959,507
    
    
    
    958,008Total investment and mortgage-backed securities available for sale
    
    $
    1,190,849
    
    
    $
    1,201,614
    
    
    $
    1,226,665
    
    
    $
    1,221,070Investment securities held to maturity:Municipals
    
    $
    189,475
    
    
    $
    194,561
    
    
    $
    184,264
    
    
    $
    187,735Mortgage-backed securities held to maturity:FNMA
    
    
    6,689
    
    
    
    6,663
    
    
    
    
    
    
    
    FHLMC
    
    
    1,601
    
    
    
    1,597
    
    
    
    
    
    
    
    GNMA
    
    
    114,213
    
    
    
    114,868
    
    
    
    99,524
    
    
    
    98,713Other
    
    
    825
    
    
    
    825
    
    
    
    924
    
    
    
    924Total mortgage-backed securities held to maturity
    
    
    123,328
    
    
    
    123,953
    
    
    
    100,448
    
    
    
    99,637Total investment and mortgage-backed securities held to maturity
    
    
    312,803
    
    
    
    318,514
    
    
    
    284,712
    
    
    
    287,372Total securities
    
    $
    1,503,652
    
    
    $
    1,520,128
    
    
    $
    1,511,377
    
    
    $
    1,508,442
 As of March 31, 2004, both the carrying value and the market value of the
available-for-sale securities was $1.20 billion. The total net unrealized gain
on these securities was $10.8 million. Such unrealized gains, net of tax, are
$6.2 million and are reflected as an addition to stockholders equity. The
difference between the carrying value and market value of securities that are
held to maturity, aggregating a gain of $5.7 million, has not been recognized
in the financial statements as of March 31, 2004. The unrealized net gains are
the result of movements in market interest rates. In conjunction with the Companys review of the fair value of securities,
for the three months ended March 31, 2004, there were no additional other than
temporary impairment charges recorded since December 31, 2003. Deposits. Deposits are the Banks primary source of funds to use in
lending and investment activities. Deposit balances were $4.71 billion at
March 31, 2004, which represented an increase of $228.0 million from $4.48
billion at December 31, 2003. Core deposit balances increased by $110.9
million, or 5.8% to $2.02 billion at March 31, 2004, compared with $1.91
billion at December 31, 2003. Core deposits include NOW, demand deposit, 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 March 31, 2004, 57.1% of our deposits were time
deposits; 24.2% were NOW, demand deposit and money market accounts; and 18.7%
were savings accounts. By comparison, at December 31, 2003, 57.4% of deposits
were time deposits; 22.9% were NOW, demand deposit and money market accounts;
and 19.7% were savings accounts. Page 23




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The Bank obtains deposits primarily from the communities it serves. At
March 31, 2004, the 100 depositors with the largest aggregate deposit balances
comprised less than 20% of the Banks total deposits. The Bank accepts
deposits in excess of $100,000 from customers. Included in time deposits as of
March 31, 2004, is $1.66 billion of deposits of $100,000 or greater. Such
deposits comprise 21.8% of total deposits. The majority of the time deposits
as of March 31, 2004, mature in one year or less. With the exception of state
and federal government entities (Public Fund Sector) contributing 7.9% of
total deposits at March 31, 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 March 31, 2004
    
    At December 31, 2003Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageBalance
    
    Rate
    
    Balance
    
    RateNOW, checking and money market accounts
    
    $
    1,138,827
    
    
    
    0.65
    %
    
    $
    1,026,047
    
    
    
    0.65
    %Savings accounts
    
    
    882,145
    
    
    
    0.79
    
    
    
    884,064
    
    
    
    0.77Time deposits:Less than $100,000
    
    
    1,026,923
    
    
    
    1.72
    
    
    
    1,042,843
    
    
    
    1.73$100,000 or greater
    
    
    1,663,645
    
    
    
    1.85
    
    
    
    1,530,567
    
    
    
    1.82Total time deposits
    
    
    2,690,568
    
    
    
    1.80
    
    
    
    2,573,410
    
    
    
    1.79Total deposits
    
    $
    4,711,540
    
    
    
    1.33
    
    
    $
    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 March 31, 2004, the Bank had $370.3
million of borrowings outstanding, as compared to $505.5 million outstanding at
December 31, 2003. Included in the $370.3 million of borrowings were $56.0 million of
short-term FHLB advances, which mature within one year, and $265.3 million in
long-term FHLB advances that mature between 2005 and 2008. As of March 31,
2004, $231.0 million of these borrowings are long-term FHLB advances that may
be terminated at the option of FHLB of San Francisco. The FHLB, at their
option, may terminate the advances at quarterly intervals at specified periods
ranging from three to five years beyond the original advance dates. As of
April 2004, an additional $10.0 million became subject to termination by the
FHLB, bringing the value of advances that may be terminated to $241.0 million.
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. At March 31, 2004, the Company had
$869.8 million of additional FHLB borrowing capability that can be utilized. As of March 31, 2004 the Hong Kong branch had short-term borrowings of
$49.0 million principally denominated in Hong Kong dollars with local financial
institutions for asset/liability management purposes. Page 24




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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 Three months EndedMarch 31, 2004
    
    March 31, 2003(Dollars in Thousands)Short-term borrowings:FHLB of San Francisco advances and other short-term borrowings:Average balance outstanding
    
    $
    188,561
    
    
    $
    56,116Maximum amount outstanding at any month end period
    
    
    222,444
    
    
    
    83,500Balance outstanding at end of period
    
    
    105,009
    
    
    
    19,580Weighted average interest rate during the period
    
    
    1.29
    %
    
    
    1.51
    %Weighted average interest rate at end of period
    
    
    0.62
    %
    
    
    1.75
    %Weighted average remaining term to maturity at end of period (in years)
    
    
    
    
    
    
    Long-term borrowings:FHLB of San Francisco advances:Average balance outstanding
    
    $
    269,284
    
    
    $
    273,789Maximum amount outstanding at any month end period
    
    
    271,395
    
    
    
    275,789Balance outstanding at end of period
    
    
    265,294
    
    
    
    271,756Weighted average interest rate during the period
    
    
    5.16
    %
    
    
    4.93
    %Weighted average interest rate at end of period
    
    
    5.32
    %
    
    
    5.11
    %Weighted average remaining term to maturity at end of period (in years)
    
    
    4
    
    
    
    5
 Subordinated Debentures of the Company (TPS).The Company established
special purpose trusts in 1998, 2001, and 2002 for the purpose of issuing
Guaranteed Preferred Beneficial Interests in its 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
1 to the Consolidated Financial Statements for further discussion. The Company had $136.0 million of TPS outstanding at March 31, 2004 and at
December 31, 2003. The proceeds of the 2002 issuances were primarily used to
fund 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 March
31, 2004, the Bank met the Well Capitalized requirements under these
guidelines. The total risk-based capital ratio of the Bank at March 31, 2004,
was 12.65%, 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 March 31, 2004, was 11.40% as compared with 10.92% at December 31,
2003. The increase in these two ratios was primarily due to net income for the
three months ended March 31, 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. 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 has
issued interim guidance allowing the inclusion of capital securities in Tier I
capital regardless of the FIN 46R interpretation. The ultimate decision of the
banking regulators is not known at this time. One potential impact of not
including these capital securities is that the Federal Reserve Bank may no
longer allow the trust preferred securities to count towards Tier I capital of
the Company. Even in such event, the Page 25




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Company would continue to be well capitalized. The Banks Tier I capital
would be unaffected, since all trust preferred 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, in
accordance with generally accepted accounting principles, 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. 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, 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 March 31, 2004, we had $2.32 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. Capital Resources.The Company has continuously declared quarterly
dividends on common stock since 1999. During the three months ended March 31,
2004, the Company paid aggregate dividends of $1.4 million. The payment of
such dividends did not have a significant impact of the liquidity of the
Company. As a result of dividends declared, the total capital of the Company
was reduced by $1.8 million during the three months ended March 31, 2004. The
dividends declared during the three months ended March 31, 2004 had the effect
of reducing the Tier I leverage capital and risk-based capital ratios by five
basis points each. The dividends declared during the three months ended March
31, 2003 had the effect of reducing the Tier I leverage capital ratio and
risk-based capital ratio each by three basis points. Page 26




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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 dated
December 31, 2003, on file with the Securities and Exchange Commission (SEC
File No. 0-24947). 
 ITEM 4. CONTROLS AND PROCEDURES At 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 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 Chief Financial Officer have
concluded that such controls and procedures are effective. During the first
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 AND USE OF PROCEEDS None. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 
 ITEM 5. OTHER INFORMATION None. Page 27




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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 United Commercial Bank and Thomas S. Wu*10.2
    
    Employment Agreement between UCBH Holdings, Inc. and Thomas S. Wu*10.3
    
    Form of Termination and Change in Control Agreement between United
Commercial Bank and certain executive officers*10.4
    
    Form of Termination and Change in Control Agreement between UCBH
Holdings, Inc. and certain executive officers*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, as
amended, signed and dated by Thomas S. Wu.31.2
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, 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 January 16, 2004, the Company filed a current report on Form 8-K, under
Item 12 Results of Operations and Financial Operations, for the Companys
press release announcing fourth quarter 2003 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 the exhibit of the same number from the
Companys Form 10-Q for the quarter ended March 31, 2001, filed with the
Securities and Exchange Commission on May 3, 2001 (SEC File No. 0-24947).***
    
    Incorporated by reference to the exhibit of the same number from the
Companys Form 10-K for the fiscal year ended December 31, 2003, 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). Page 28




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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: May 7, 2004
    /s/ Thomas S. WuThomas S. WuChairman, President and
Chief Executive Officer
(principal executive officer) Date: May 7, 2004
    /s/ Jonathan H. DowningJonathan H. DowningExecutive Vice President and
Chief Financial Officer
(principal financial officer) Page 29




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EXHIBIT INDEX 3.1
    
    Second Amended and Restated Certificate of Incorporation of UCBH
Holdings, Inc.3.2
    
    Amended and Restated Bylaws of UCBH Holdings, Inc.31.1
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended, signed and dated by Thomas S. Wu.31.2
    
    Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, 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.