2006 ANNUAL REPORT - Far East National Bank

2006 ANNUAL REPORT

Far East National Bank is committed to nurturingthe right relationships and providing needed resourcesand responsive service to assure our customerswill meet their full potential.

Year inReview/2006During 2006, our assets and deposits grew; we continued to invest in newproducts, processes, and systems to enhance customer efficiency and service;and our operating earnings grew 25%. Our strong results reinforced ourmission to build long-term client relationships with superior products, service,and people at every point of contact in the Bank.We are proud to report that in 2006:• We achieved record net income of $18.3 million and operating income growth of 25%. At the end of the year, our capitalexceeded $200 million and our risk-adjusted capital ratio reached 13%.• We significantly enhanced our products, systems, and compliance functions to support the rapidly growing business activitieswith our Pacific Rim customers.• Our Vietnam Branch grew its assets by 150%, increased deposits by 300%, and achieved a commendable profit in onlyits second full year of operation.• Our Treasury Services Group increased its treasury marketing customer base by 15% and enhanced the overall yield of ourinvestment portfolio by 0.6% while continuing to reduce duration.• On November 13, 2006, our parent company, Bank SinoPac, completed a merger with International Bank of Taipei. Thecombined company, Bank SinoPac and its SinoPac Holdings affiliates, now has total assets of over US$34 billion and servesmore than 2.5 million customers in Taiwan, Hong Kong, Macau, China, Vietnam, and the United States from more than204 service locations.02

FinancialHighlightsYears Ended Dec. 31,2001 2006 GrowthTotal Assets (Avg) $ 1,367,277,000 $ 1,812,805,000 32.6%Total Deposits (Avg) 909,503,000 1,351,594,000 48.6%Net Income 5,704,162 18,272,012 220.3%Total Assets (Avg)32.6%(Dollars in Billions)Total Deposits (Avg)48.6%(Dollars in Billions)Net Income220.3%(Dollars in Millions)1.812.002.0018.27201.751.7517.51.371.501.351.50151.251.2512.51.000.911.0010.75.757.55.70.50.505.0.25.252.52001 20062001 20062001 200603

A Message from theChairman and the PresidentAn International Community BankFar East National Bank (FENB) is a unique financial institution – a Californiacommunity bank with an international lineage and a global perspective. Becauseyou — our stakeholders — are an important part of our community, we wouldlike to take this opportunity to share some highlights from the past year.In 2006:• We achieved the key financial performancegoals that will allow us to furtherdevelop our original offerings as aleading financial services partner forcompanies and individuals doingbusiness in the Pacific Rim.• We also resolved outstanding regulatoryissues by adapting and streamliningour infrastructure. The resultingacknowledgment of our efforts bygovernment regulators paves the wayfor a more seamless internationalbanking experience for our customersand for the growth of innovativeproducts – like our InterContinentalFinancial Services accounts, ourRegional Service Platform, andthe investment products offeredthrough FENB Financial Services.• Our Vietnam Branch in Ho Chi MinhCity grew its assets by 150% anddeposits by 300%, which resulted in acommendable profit in its second fullyear of operation.Whether our customers are in LosAngeles, San Francisco, Hong Kong,Shanghai, or Ho Chi Minh City, our commitmentto them and to the places inwhich we all live and work allows FENBto provide the outstanding service thatis characteristic of community banks.Expanding our GlobalCapabilitiesWe continued to expand our global reachin 2006, providing our valued corporateand individual customers seamless accessto an extensive network of financialresources in the United States, Taiwan,China, Hong Kong, Macau, and Vietnam.In addition to our 15 Californiabranches, our Vietnam branchprovides customers withunparalleled access to resourcesin Southeast Asia and ourBeijing representative office isan important resource forcustomers doing business inChina’s capital.In November, FENB’s parent company,Bank SinoPac, finalized its merger withthe International Bank of Taipei. Thecombined company, Bank SinoPac andits SinoPac Holdings affiliates, has totalassets of over US$34 billion and servesmore than 2.5 million customers in Asiaand North America from more than 204service locations. Bank SinoPac nowranks as the fourth largest non-governmentalbank in Taiwan.In addition to our 15 Californiabranches, our Vietnam branch providescustomers with unparalleled access toresources in Southeast Asia, and ourBeijing representative office is animportant resource for customersdoing business in China’s capital. In2006, we also continued to workclosely with our strategic alliancepartner, First Sino Bank, in Shanghai.Financial PerformanceWe are pleased to report that, in 2006,FENB had a successful year in all majorfinancial categories.Some highlights:• We earned $18.3 million after tax in2006, the third consecutive year ofnet income increase.• Our net operating income during theyear increased 25%, from $14.4 millionto $18 million.• Revenue grew to $71 million, an 8%increase, while our operating expensedeclined 1%.04

• Total equity surpassed $200 million forthe first time.• Total deposits stood at $1.3 billionat year end with a good balance ofoverseas and domestic customers.• FENB’s investment portfolio enjoyed asignificant increase in yield, and weexpect similar gains in 2007.• Our loans continued to grow, totaling$1.2 billion in 2006, a 6% increase.We reestablished growth in ourcommercial real estate lending,with commitments up 26%.Finally, we achieved these revenue andincome increases while holding ourexpenses flat, in real dollars, since 2004.A Focus on CommunityWe believe strongly in leading by exampleto make a difference in the lives ofothers, and as a community bank, weknow that this commitment starts inour own backyard.In 2006, we enhanced our communityservice program. FENB employeescontributed thousands of hours ofcommunity service to more than 30locally-based organizations.FENB made more than $33 million inCommunity Reinvestment Act-relatedcommitments in the past three years inour home state of California. In 2006, wewere awarded seven Federal Home LoanBank Alternative Housing Program Awards.Enhanced Leadership CapabilitiesWe continued to strengthen our leadershipteam in 2006, welcoming 20-yearFENB veteran Edward Kuo to our Boardof Directors. Mr. Kuo serves as ExecutiveWe believe strongly in leadingby example to make a differencein the lives of others, and as acommunity bank, we know thatthis commitment starts in ourown backyard.Vice President and Chief Credit Officer,heading the credit committee, ensuringthe safety and soundness of the loanportfolio, managing the credit originationprocess, and providing leadershipin maintaining the board-prescribedcredit and compliance culture.In addition, Sophie Cheng joined usas Executive Vice President and RetailBanking group head. Previously, Ms.Cheng was the General Manager ofBank SinoPac’s Los Angeles Branch.Looking AheadIn 2007, we look forward to an excellentyear. Because we worked hard in 2006to ensure that our internal standardsand processes kept pace with the rapidand diverse growth of the Bank, we willshift to an even more customer-centricfocus in 2007.We will further expand our relationshipbasedservices. In particular, we willfocus on our significant overseas customerbase, introducing new servicesfor enterprises and individuals in Taiwanand China, using our existing businessas a strong foundation.We will revitalize InterContinentalFinancial Services accounts, which representthe leading edge of cross-Pacific,multi-currency banking. These accountsare ideal financial management toolsfor overseas businesses or individualswishing to globalize assets, conductbusiness or family transactions betweenAsia and the United States, or diversifyinvestments while reducing the riskinherent in foreign exchange. We willcontinue to promote our TreasuryMarketing Unit and to provide servicesto companies and high net worthindividuals with specialized needs inforeign exchange trading.Our philosophy is embodied by theChinese character “Yuen” – the centerpieceof SinoPac Holdings’ corporatesymbol. “Yuen” denotes all that we wishfor you in the coming year – perpetualprosperity, balance, and harmony.It is our honor to serve our community,customers, stakeholders, and employees.We look forward to being a partner inyour success for many years to come.Respectfully,Paul C. Lo, ChairmanFrederick C. Copeland, Jr., Vice ChairmanRobert W. Sweeney, President05

Board ofDirectorsPaul C. Lo is the Founder of Bank SinoPac, Taiwan, and spearheaded the acquisition of Far EastNational Bank in 1997. He is currently the President and CEO of SinoPac Holdings (Far East NationalBank’s ultimate parent company), the Chairman of Bank SinoPac, and Chairman and CEO of FarEast National Bank.Mr. Lo earned an MBA from Indiana State University in 1970 and was honored with a DistinguishedAlumni Award in 2003. BusinessWeek named Mr. Lo one of “50 Stars in Asia” in 1999.Frederick C. Copeland, Jr. joined theBoard of Far East National Bank in 2004 asExecutive Director and was appointed ViceChairman of the Board in 2006. Mr. Copeland isChairman of the Board’s Executive Committee,Compliance Committee, and Far East CapitalCorporation. He also serves on the Audit andCredit Committees. Mr. Copeland is also aTrustee of the Taiwan Greater China Fund.Robert W. Sweeney is the President andBoard member of Far East National Bank, havingbeen appointed to both positions in 2004. Mr.Sweeney is a member of the Board’s Executive,Compliance, and Credit Committees.06

Board ofDirectorsRobert T. Chang joined the Boardof Far East National Bank in 2003.He is President of the Robert ChangAccountancy Corporation, a professionalfirm providing auditing, tax, andfinancial planning services to over 500clients. Mr. Chang is Chairman of theBoard’s Audit Committee and a memberof the Compliance Committee.Angus Chen joined the Board ofFar East National Bank in 2000. Mr. Chenwas one of the original founders of BankSinoPac in 1992, and since that datehas served in a variety of capacities,including responsibility for corporatebanking, credit, human resources,legal affairs, and administrative services.He was appointed President of BankSinoPac in 2001.Ralph M. Ho joined the Board ofFar East National Bank in 2006. He isPresident and CEO of Y.F. Internationaland Western Pacific Pulp and Paper, Inc.in California. Mr. Ho is a memberof the Board’s Audit Committee.Eugene Hong joined the Board ofFar East National Bank in 2002.Mr. Hong oversees and advises onsecurities-related activities of SinoPacHoldings in the U.S.Edward Kuo joined the Board ofFar East National Bank in 2006. Mr. Kuois Executive Vice President and ChiefCredit Officer of Far East National Bankand chairs the Credit Committee.Mr. Kuo is a member of the Board’sExecutive Committee andCompliance Committee.07

CorporateExecutive OfficersFred TsaiSenior Executive Vice PresidentCynthia TsengExecutive Vice PresidentChief Financial OfficerTreasury Services GroupSteve LeeExecutive Vice PresidentAsia Pacific Banking GroupAlice HuangExecutive Vice PresidentCommercial Real Estate BankingGroup – NorthMichael GreenExecutive Vice PresidentCommercial Real Estate BankingGroup – SouthChristina ChingSenior Vice PresidentCorporate Banking GroupSophie ChengExecutive Vice PresidentRetail Banking GroupSteven ButcherExecutive Vice PresidentCredit AdministrationEdmond HonExecutive Vice PresidentPresident, Far East Capital CorporationEileen LyonExecutive Vice PresidentLegal and ComplianceTsai-Jung (T.J.) ChenExecutive Vice PresidentOperations and Technology Group08

Customer &Community ServiceCustomer ServiceNominated by their colleagues, recipientsof the 2006 quarterly service awards wererecognized for their professionalism,dedication, and outstanding service toboth customers and their peers.Frances Cheng, Loan OperationsManager, Alhambra Financial CenterFrances Cheng was involved in the loanboarding and booking of a key NorthernCalifornia client of the Retail BankingGroup. Frances worked diligently todocument a complex real estate transactionand successfully met the customer’srequest for an early escrow closing.Rosanna Hung, Customer ServiceManager, SF Sunset BranchRosanna Hung constantly excels at herresponsibilities, whether it is in branchoperations, customer relations, or sales.During a quarterly deposit promotion, shevoluntarily arranged to meet with a VIPclient on a non-business day and consequentlybrought in $250,000 from thecustomer to open a new account.Stacy Tsang, Executive Assistant,Corporate OfficeStacy Tsang never hesitates when itcomes to assisting her peers and isalways willing to go the extra mile for thebetterment of the bank. Her professionalismand dedication are displayed throughher work and she always demonstratesthose qualities with a positive attitudeand friendly demeanor.2006 Quarterly Service Award recipients (left to right):Frances Cheng, Rosanna Hung, Sandy Wang, Stacy Tsang, Cynthia WuSandy Wang, HR Assistant,Human ResourcesSandy Wang is part of a payroll teamthat works diligently to ensure thatemployees are paid on time. In the lastquarter of 2006, an employee paycheckwas delayed due to unforeseen circumstances.After the paycheck was manuallyprinted, Sandy took it upon herselfto personally deliver the check to theemployee’s home on her own time afterbusiness hours.Cynthia Wu, Purchasing Assistant,Operations AdministrationCynthia Wu provides support forbankwide purchasing requests and isalways very patient in her explanationof policies and procedures. Cynthia alsogoes out of her way to assist others withinquiries regarding facility and premisesrequests, equipment repairs, andparking assignments. Cynthia alwaysdelivers service with a smile and acongenial attitude.Community ServiceFENB employees rallied around ourcommitment to community service,dedicating thousands of hours to makea difference in the lives of others.• Tzu Chi Foundation,Los Angeles, CA – 565 hours• Union Station Foundation,Pasadena, CA – 229 hours• Project Open Hand,San Francisco, CA – 150 hours• Avatamsaka Buddhist Lotus Society,Milpitas, CA – 150 hours• City of Los Angeles CommunityDevelopment Department,Los Angeles, CA – 96 hours• City of Cupertino,Santa Clara, CA – 52 hours• ACCA-SoCal/Foley L.A. Works Day,Los Angeles, CA – 50 hours• Big Brothers/Big Sistersof Orange County,Orange County, CA – 50 hours• San Gabriel Valley Habitatfor Humanity,San Gabriel Valley, CA – 48 hours• Affordable Housing Program,Federal Home Loan Bank,San Francisco, CA – 36 hours• Southern CA Reinvestment CDFI,Los Angeles, CA – 36 hours• Junior Achievement,San Francisco & Los Angeles areas, CA– 35 hours• Rosemary Children’s Services,Pasadena, CA – 25 hours• Asian Scholarship,San Francisco, CA – 24 hours• Greater Pasadena Aid Fund,Los Angeles, CA – 24 hours• Alliance for Community Development,San Francisco, CA – 24 hours09

Branches andOffice LocationsCorporate HeadquartersNorthern CaliforniaBusiness UnitsTwo California Plaza350 South Grand Avenue, Suite 4100TEL: (213) 687-1200 / FAX: (213) 687-8511Southern CaliforniaAlhambra105 East Valley BoulevardTEL: (626) 293-3100 / FAX: (626) 284-7636Arcadia635-637 West Duarte RoadTEL: (626) 821-3300 / FAX: (626) 821-3301City of Industry17851 Colima Road, Suite BTEL: (626) 854-8450 / FAX: (626) 854-2824Irvine15333 Culver Drive, Suite 640TEL: (949) 936-1100 / FAX: (949) 262-0905Los Angeles977 North BroadwayTEL: (213) 687-1300 / FAX: (213) 680-1535Two California Plaza350 South Grand Avenue, LobbyTEL: (213) 687-1260 / FAX: (213) 626-3884Cupertino10465 South De Anza BoulevardTEL: (408) 342-8000 / FAX: (408) 342-8001Fremont46560 Fremont Boulevard, Suite 403TEL: (510) 790-8500 / FAX: (510) 713-1325Oakland1423 Broadway (Frank Ogawa Plaza)TEL: (510) 267-6800 / FAX: (510) 267-6801San Francisco500 Montgomery StreetTEL: (415) 986-2300 / FAX: (415) 986-88392309 Noriega StreetTEL: (415) 242-8200 / FAX: (415) 242-8201San Jose2001 Gateway Place, Suite 101ETEL: (408) 487-0320 / FAX: (408) 487-0333VietnamHo Chi Minh CitySaigon Riverside Office Building2A-4A Ton Duc Thang Street, District 1TEL: 84-8-8220566 / FAX: 84-8-8220560Asia Pacific Banking GroupTEL: (626) 363-6869 / FAX: (626) 363-6892Commercial Real Estate Banking Group – NorthTEL: (415) 677-8536 / FAX: (415) 986-8839Commercial Real Estate Banking Group – SouthTEL: (213) 830-2472 / FAX: (213) 625-3669Corporate Banking GroupTEL: (626) 293-3119 / FAX: (626) 458-9669Retail Banking GroupTEL: (213) 687-1213 / FAX: (213) 687-8511Treasury Services GroupTEL: (213) 687-1280 / FAX: (213) 620-1159Alhambra Financial CenterTEL: (626) 293-3137 / FAX: (626) 293-3192Consumer BankingTEL: (213) 687-2789 / FAX: (213) 687-2593Correspondent BankingTEL: (213) 687-1293 / FAX: (213) 626-4687FENB Financial ServicesTEL: (626) 363-6800 / FAX: (626) 363-6866InterContinental Financial ServicesTEL: (213) 687-2552 / FAX: (213) 687-2542SBA/Small Business LendingTEL: (626) 854-8468 / FAX: (626) 854-8460Monterey Park809 South Atlantic Boulevard, Suite 101TEL: (626) 293-5100 / FAX: (626) 284-1077Newport Beach4699 Jamboree RoadTEL: (949) 442-3200 / FAX: (949) 263-0418ChinaBeijing Representative OfficeScitech Tower, Room 911Number 22, Jianguo Men Wai AvenueTEL: 86-10-6515-9118 / FAX: 86-10-6515-9117SubsidiaryFar East Capital CorporationTEL: (213) 687-1228 / FAX: (213) 687-8511Pasadena301 North Lake Avenue, Suite 100TEL: (626) 397-6300 / FAX: (626) 577-552610

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors and Stockholder ofFar East National BankLos Angeles, CaliforniaWe have audited the accompanying consolidated balance sheet of Far East National Bank and subsidiary(the “Bank”) as of December 31, 2006, and the related consolidated statements of income, stockholder’sequity and comprehensive income and cash flows for the year then ended. These financial statements are theresponsibility of the Bank's management. Our responsibility is to express an opinion on these financialstatements based on our audit. The consolidated financial statements of Far East National Bank andsubsidiaries as of December 31, 2005, were audited by other auditors whose report dated March 31, 2006,expressed an unqualified opinion on those statements.We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.In our opinion, the 2006 consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Far East National Bank and subsidiary as of December 31, 2006, andthe results of their operations and their cash flows for the year then ended in conformity with accountingprinciples generally accepted in the United States of America.March 1, 200711

FAR EAST NATIONAL BANK AND SUBSIDIARYCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2006 AND 2005ASSETS 2006 2005Cash and cash equivalentsSecurities available-for-sale$ 117,020,321336,849,607$ 130,396,266314,942,760Securities held-to-maturity 74,725,178 88,904,644Federal Home Loan Bank stock—at cost 9,929,300 9,635,000Federal Reserve Bank stock—at cost 3,385,200 3,386,800Loans, net of allowance for loan losses of $13,280,855 in 2006 and$11,937,392 in 2005 1,206,886,323 1,136,916,011Customers’liability on acceptances 601,018 1,490,951Other real estate owned - 3,360,186Premises and equipment—net 9,386,599 10,548,717Deferred tax assets 7,185,107 4,724,322Goodwill 25,749,881 25,749,881Other intangible assets—net 2,609,250 3,073,116Bank owned life insurance 32,949,858 31,559,699Other assets 20,530,177 18,735,360TOTAL $ 1,847,807,819 $ 1,783,423,713LIABILITIES AND STOCKHOLDER’S EQUITYDEPOSITS:Non-interest bearing $ 161,087,398 $ 180,876,373Interest bearing 338,875,269 400,265,104Time certificates ofdeposit:Under $100,000 202,536,139 191,900,950$100,000 and over 638,784,695 559,081,280Total deposits 1,341,283,501 1,332,123,707OTHER LIABILITIES:Federal funds purchased and securities sold under agreementsto repurchase 140,282,090 107,138,851FHLB advances 125,000,000 125,000,000Subordinated debt 15,000,000 15,000,000Acceptances outstanding 601,018 1,490,951Other liabilities 24,906,532 20,109,950Total other liabilities 305,789,640 268,739,752MINORITY INTEREST IN PREFERRED STOCK OF SUBSIDIARY - 1,000,000COMMITMENTS AND CONTINGENCIES (Note 13)STOCKHOLDER’S EQUITY:Common stock, $1.25 par value—6,800,000 shares authorized;issued and outstanding, 180,000 shares 225,000 225,000Additional paid-in-capital 112,668,127 112,668,127Retained earnings 89,589,300 71,334,164Accumulated other comprehensive loss—net (1,747,749) (2,667,037)Total stockholder’s equity 200,734,678 181,560,254TOTAL $ 1,847,807,819 $ 1,783,423,713See accompanying notes to consolidated financial statements.12

FAR EAST NATIONAL BANK AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31, 2006 AND 20052006 2005INTEREST INCOME:Interest andfees on loans $ 100,873,404 $ 83,406,997Interest anddividends on investment securities 16,328,963 11,512,628Interest on short-term investments 6,167,139 3,605,456Total interest income 123,369,506 98,525,081INTEREST EXPENSE:Interest on deposits 47,599,789 31,791,081Interest on FHLB advances 5,443,495 2,687,407Interest on subordinateddebts 1,250,162 977,325Interest on short-term borrowing 5,446,013 3,124,688Total interest expense 59,739,459 38,580,501NET INTEREST INCOME BEFORE PROVISION FORLOAN LOSSES 63,630,047 59,944,580PROVISION FOR LOAN LOSSES 1,750,000 (1,700,000)NET INTEREST INCOME AFTER PROVISION FORLOAN LOSSES 61,880,047 61,644,580NON-INTEREST INCOME:Gain/(Loss) on sale of securities—net 118,424 (2,194,431)Gain on sale of other real estate owned 637,280 51,217Customer service fees 3,409,779 4,842,370Other non-interest income 2,748,954 2,758,153Total non-interest income 6,914,437 5,457,309NON-INTEREST EXPENSE:Salaries and relatedbenefits 26,593,392 23,995,533Occupancy expense 6,709,230 6,508,056Amortization of intangible assets 463,867 463,867Loss (Gain) on sale of premises, equipment and other assets—net 1,476 (5,847,997)Other operating expenses 9,496,368 12,651,957Total non-interest expense 43,264,333 37,771,416INCOME BEFORE INCOME TAXES 25,530,151 29,330,473PROVISION FOR INCOME TAXES 7,258,139 11,538,461NET INCOME $ 18,272,012 $ 17,792,012See accompanying notes to consolidated financial statements.13

FAR EAST NATIONAL BANK AND SUBSIDIARYCONSOLIDATED STATEMENTSYEARS ENDED DECEMBER 31,OF STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME2006 AND 2005BALANCE—January 1, 2005AccumulatedAdditional OtherCommon StockPaid-In Retained ComprehensiveShares Amount Capital Earnings Income (Loss) Total180,000 $ 225,000 $ 112,668,127 $ 54,834,980 $ (2,232,623) $ 165,495,484Dissolution of subsidiaries (52,828) (52, 828)Cash dividend paid ($6.67 per share ) (1,200,000) (1,200, 000)Undeclared dividend on minority in terest inpreferred stock of subsidiary (40,000) (40, 000)Comprehensive income:Net incomeChange in net unrealized gain (lossecurities available-for-sale—net17,792,012 17,792,012s) onofx effects (434,414) (434,reclassification adjustment and ta 414)Comprehensive income $ 17,357,598BALANCE—December 31, 2005180,000 225,000 112,668,127 71,334,164 (2,667,037) 181,560,254Dividend paid on minority interest inpreferred stock of subsidiary (16,876) (16, 876)Comprehensive income:Net incomeChange in net unrealized gain (lossecurities available-for-sale—netreclassification adjustment and ta18,272,012 18,272,012s) onofx effects 919,288 919,288Comprehensive income $ 19,191,300BALANCE—December 31, 2006 180,000 $ 225,000 $ 112,668,127 $ 89,589,300 $ (1,747,749) $ 200,734,678See accompanying notes to consolidated financial statements.14

FAR EAST NATIONAL BANK AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2006 AND 20052006 2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income $ 18,272,012 $ 17,792,012Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 2,886,642 3,094,003Premium accretion on securities—net (61,987) 1,043,607Provision for loan losses 1,750,000 (1,700,000)Loss on sale of securities - 2,194,431Gain on sale of other real estate owned (637,280) (51,217)Loss (gain) on sale of assets—net 1,476 (5,847,997)Federal Home Loan Bank stock dividend (438,569) (411,756)Increase in cash surrender value of bank owned life insurance (1,390,159) (1,377,635)Amortization of deferred loan fees (525,999) (585,541)Decrease in other assets and customers liability on acceptances 111,507 1,061,881Deferred tax benefit (3,127,734) (431,245)Increase in other liabilities and acceptance outstanding 4,467,855 3,113,520Net cash provided by operating activities 21,307,764 17,894,063CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales, maturity and calls of securities available-for-sale 140,547,506 101,517,881Proceeds from sales, maturity and calls of securities held-to-maturity 22,438,267 35,284,105Purchase of securities available-for-sale (160,557,023) (230,966,638)Purchase of securities held-to-maturity (8,507,910) (10,239,356)Purchase of FHLB and other equity stocks (5,752,342) (2,825,112)Proceeds from call and sale of FHLB and other equity stocks 4,740,756 3,476,178Net (increase) decrease in loans (71,794,312) 20,001,268Purchase of premises and equipment (1,121,067) (487,423)Proceeds from bank owned life insurance redemption - 2,184,546Proceeds for sale of premises and equipment - 8,752,569Proceeds from sale of OREO 4,597,466 1,030,234Net cash used in investing activities (75,408,659) (72,271,748)CASH FLOWS FROM FINANCING ACTIVITIES:Decrease in interest bearing and non-interest bearing deposits (81,178,810) (151,417,456)Increase in time certificates of deposit 90,338,603 126,366,232Increase (decrease) in federal funds purchased and securities sold under agreementsto repurchase 33,143,239 (22,564,776)Increase from FHLB advances - 125,000,000Redemption of preferred stock (1,000,000) -Loss from dissolution of subsidiaries - (52,828)Dividend paid (578,082) (1,200,000)Net cash provided by financing activities 40,724,950 76,131,172INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,375,945) 21,753,487CASH AND CASH EQUIVALENTS—Beginning of year 130,396,266 108,642,779CASH AND CASH EQUIVALENTS—End of year $ 117,020,321 $ 130,396,266SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION—Cash paid for:Interest $ 54,755,239 $ 34,066,588Income taxes $ 7,800,000 $ 12,350,000SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:Transfer of loans to other real state owned $ 600,000 $ 4,339,203Undeclared dividend by subsidiary to minority interest in stock of subsidiary $ - $ 40,000See accompanying notes to consolidated financial statements.15

FAR EAST NATIONAL BANK AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2006 AND 20051. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Principles of Consolidation—The 2006 consolidated financial statementsinclude the accounts of Far East National Bank and its wholly owned subsidiary, Far East CapitalCorporation. The accounting and reporting policies of the Bank conform with accounting principlesgenerally accepted in the United States of America (“US GAAP”) and general practices in the bankingindustry. All intercompany balances and transactions have been eliminated in consolidation. Two othersubsidiaries, FENB Loan Corporation and FENB Film Corporation, were dissolved in September 2005.Use of Estimates—In preparing consolidated financial statements in conformity with US GAAP,management is required to make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet andreported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose estimates. Material estimates that are particularly susceptible to significant change in the near termrelate to the determination of the allowance for loan losses, deferred tax assets, and the outcome oflitigation.Significant Group Concentration of Credit Risk—Most of the Bank’s activities involve customerslocated within the greater Los Angeles region and San Francisco region. Note 2 indicates the type ofsecurities held by the Bank. Note 3 indicates the type of lending that the Bank engages in.Cash and Cash Equivalents—Cash and cash equivalents include cash on hand, amounts due from banksand commercial paper with an initial maturity of three months or less. The Bank is required to maintainreserve balances with the Federal Reserve Bank under the Federal Reserve Act. The average requiredcash reserve balance for the years ended December 31, 2006 and 2005 was $8,436,000 and $11,434,000,respectively.Securities—Debt securities that management has the positive intent and ability to hold to maturity areclassified as “held-to-maturity” and recorded at amortized cost. Securities not classified as held-tomaturityor trading, are classified as “available-for-sale” and recorded at fair value, with unrealizedgains and losses excluded from earnings and reported as a component of accumulated othercomprehensive income net of tax.Purchase premiums and discounts are recognized in interest income using the interest method over theterms of the securities. Declines in the fair value of held-to-maturity and available-for-sale securitiesbelow their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.Gains and losses on the sale of securities are recorded on the settlement date and are determined usingthe specific identification method.Federal Home Loan Bank and Federal Reserve Bank Stock—The Bank’s investments in the stock ofthe Federal Home Loan Banks (“FHLBs”) and Federal Reserve Bank (“FRB”) are carried at cost sincethey are not readily marketable securities. Periodically and as conditions warrant, the Bank reviews itsinvestment in FHLB and FRB stock for impairment and adjusts the carrying value if the investment isdetermined to be impaired.16

Loans and Loan Fees—Loans that management has the intent and ability to hold for the foreseeablefuture or until maturity or payoff generally are reported at their outstanding unpaid principal balancesadjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originatedloans. Interest on loans is accrued daily as earned, except where a reasonable doubt exists as to thecollectibility of the interest, in which case the accrual of income is discontinued, which generally is at90 days delinquent. When a loan is placed on non-accrual status, the accrual of interest income isdiscontinued and previously accrued but uncollected interest income is reversed against income.Thereafter, future cash payments received are typically applied first to the loan balance and then tointerest income until the loan is reinstated to accrual status.Nonrefundable loan fees and certain direct costs associated with originating and acquiring loans are notrecognized at the time of origination but are deferred and amortized over the life of the loan as anadjustment to the yield of the related loan using the effective interest method. Other loan fees andcharges, representing service costs for prepayment of loans, for delinquent payments or formiscellaneous loan services, are recorded as income when collected.Certain Small Business Administration (SBA) loans that the management has the intent to sell beforematurity are designated as held-for-sale at origination and recorded at the lower of cost or market value,determined on an aggregate basis. A valuation allowance is established if the market value of such loansis lower than their cost, and operations are charged or credited for valuation adjustments. On loans sold,the Bank allocates the carrying value of such loans between the portion sold and the portion retained,based upon estimates of their relative fair values at the time of sale. The difference between the adjustedcarrying value and the face amount of the portion retained is amortized to interest income over the life ofthe related loan using the interest method.Servicing assets are recognized when loans are sold with servicing retained. The servicing asset isrecorded based on the present value of the contractually specified servicing fee, net of servicing cost,over the estimated life of the loan, using a discount rate of the related note rate plus 1 to 2 percent. Theservicing asset is amortized in proportion to and over the period of estimated servicing income.Management periodically evaluates the servicing asset for impairment, which is the carrying amount ofthe servicing asset in excess of the related fair value. At December 31, 2006 and 2005, servicing assetsare immaterial to the Bank.A loan is considered impaired when it is probable that the Bank will be unable to collect all amounts due(e.g., both principal and interest) according to the contractual terms of the loan agreement. Generally thisincludes all loans that are 90 days or more delinquent and not accruing interest. The measurement ofimpairment may be based on (1) the present value of the expected future cash flows of the impairedloan, discounted at the loan’s original effective interest rate, (2) the observable market price of theimpaired loan, or (3) the fair value of the collateral reduced for the estimated selling cost of a collateraldependentloan. A specific valuation allowance is established in the amount by which the recordedinvestment of the loan exceeds the measurement of the impaired loan. A corresponding charge toprovision for loan losses is recorded to establish this allowance.The Bank recognizes troubled debt restructured loans as impaired. Troubled debt restructurings are thoseloans that the Bank has, for reasons related to borrowers’ financial difficulties, granted concessions toborrowers (including reductions of either interest or principal) that it would not otherwise consider,whether or not such loans are secured or guaranteed by others. The Bank’s policy for recognition ofinterest income on impaired loans is consistent with the policy used for non-accrual loans.Allowance for Loan Losses—Loan losses are charged against, and recoveries are credited to, theallowance for loan losses. Additions to the allowance are charged to the provision for loan losses. Theallowance for loan losses is maintained at a level considered adequate to provide for losses that are17

inherent in the loan portfolio at the balance sheet date. The adequacy of the allowance is determined bymanagement based upon a periodic review of the loan portfolio, consideration of historical loan lossexperience, current economic conditions, changes in the composition of the loan portfolio, analysis ofcollateral values and other pertinent factors. Although management believes that the level of theallowance is adequate to absorb losses inherent in the loan portfolio, additional declines in the localeconomy or rising interest rates may result in increasing losses that cannot reasonably be predicted atthis time.Credit Related Financial Instruments—In the ordinary course of business, the Bank has entered intocommitments to extend credit, including commercial letters of credit, and standby letters of credit. Suchfinancial instruments are recorded when they are funded (see Note 13).Derivative Instruments Held for Customer Accommodation—The Bank enters into a variety of interestrate derivative contracts, primarily swaps, options, forwards and foreign exchange contracts primarily asan accommodation to customers. If certain conditions are met, a derivative may be specificallydesignated as a fair value hedge, a cash flow hedge, or a hedge of foreign currency exposure.Such derivatives contracts held for customer accommodation are reported on the balance sheet (includedin other assets and other liabilities) and are carried at fair value, with realized and unrealized changes infair values recognized in non-interest income in the period in which the changes occur.Premises and Equipment—Premises and equipment are stated at cost, less accumulated depreciationand amortization. Depreciation and amortization expense is computed on the straight-line method overthe shorter of the estimated useful lives or lease terms of the assets, which range from 3 to 31-1/2 years.Subordinated Debt—The Bank issued two 10-year floating rate junior subordinated debentures (subdebt)that are callable on a five-year basis in 2003. The purpose of the sub-debt is to provide the Bankwith a cost-effective means of obtaining Tier I Capital for regulatory purposes.Other Real Estate Owned—Other real estate owned (“OREO”) consists of real estate acquired throughforeclosure or other proceedings and is initially recorded at the lower of cost or fair value less sellingcosts. Any cost in excess of the fair value less selling costs at the time of acquisition are accounted for asa loan charge-off and deducted from the allowance for loan losses. Any subsequent declines in value arecharged to earnings.Goodwill and Intangible Assets—Intangible assets are comprised of core deposit intangibles andgoodwill. Intangible assets are being amortized on a straight-line basis over a period of 15 years. InJanuary 2002 the Bank adopted Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets, and, as a result, no longer amortizes goodwill, but tests it at leastannually for impairment. The Bank will continue to amortize the core deposit intangible over anestimated useful life of 15 years (see Note 6).Income Taxes—The Bank files a consolidated federal income tax return and a combined state franchisetax return with SinoPac Bancorp.SinoPac Bancorp and the Bank have entered into a tax sharing agreement for income and franchisetaxes. The income tax provision as disclosed within the accompanying consolidated financial statementsis based on the amount that the Bank would have paid had it filed a separate income tax return.18

The Bank accounts for income taxes under the asset and liability method. The Bank establishes deferredtax assets and liabilities for the temporary differences between the financial reporting basis and the taxbasis of the Bank’s assets and liabilities at enacted tax rates expected to be in effect when such amountsare realized or settled. A valuation allowance is established for deferred tax assets if, based on theweight of available evidence, it is more likely than not that some portion or all of the deferred tax assetswill not be realized.Federal Funds and Securities Sold under Agreements to Repurchase—Federal funds purchased andsecurities sold under repurchase agreements represent short-term borrowings maturing within less than90 days.Far East Capital Corporation—The Bank is the sole common stockholder of Far East CapitalCorporation (the “Corporation”), a small business investment company. Minority interest shown in theaccompanying consolidated balance sheets represents the preferred stock of the Corporation held by theU.S. Small Business Administration (the “SBA”), issued during 1992 (see Note 10).FENB Loan Corp.—FENB Loan Corp., a wholly owned subsidiary of the Bank, was established in2001 with a capital infusion of $1,000. The corporation was established to acquire film loans from theBank and sell such loans to FENB Film Corp. This corporation was dissolved in September, 2005.FENB Film Corp.—FENB Film Corp., a wholly owned subsidiary of the Bank, was established in 2001with a capital infusion of $1,000. The corporation was established for the sole purpose of managing thefilm rights owned. Film rights were acquired through the assumption of a loan obligation in a noncashtransaction with the film’s owners. This corporation was dissolved in September, 2005.Comprehensive Income—Accounting principles generally require that recognized revenue, expenses,gains and losses be included in net income. Although certain changes in assets and liabilities, such asunrealized gains and losses on available-for-sale securities, are reported as a separate component of theequity section of the balance sheet, such items, along with net income, are components ofcomprehensive income.The components of other comprehensive income and related tax effects are as follows as ofDecember 31:2006 2005Unrealized holding gain (loss) on available-for-sale securities $ 1,704,660 $ (2,944,017)Reclassification adjustment for (gain) loss realized in income (118,424) 2,194,431Net unrealized gain (loss) 1,586,236 (749,586)Tax effect (666,948) 315,172Net-of-tax amount $ 919,288 $ (434,414)19

Recent Accounting Pronouncements— Issued June 2006 FIN 48, Accounting for Uncertainty inIncome Taxes—an interpretation of FASB Statement No. 109. Effective for fiscal years beginning afterDecember 15, 2006. This Interpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken or expected to be taken in atax return. This Interpretation also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure, and transition. Adoption of this interpretation is notexpected to have a significant impact on the Bank’s consolidated financial statements.September 2006 FAS 157, Fair Value Measurements. Effective for fiscal years beginning afterNovember 15, 2007, and all interim periods within those fiscal years. This Statement defines fair value,establishes a framework for measuring fair value in generally accepted accounting principles (GAAP),and expands disclosures about fair value measurements. Adoption of this interpretation is not expected tohave a significant impact on the Bank’s consolidated financial statements.February 2007 FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115. Effective as of the beginning of an entity’s firstfiscal year that begins after November 15, 2007. This Statement permits entities to choose to measuremany financial instruments and certain other items at fair value. The objective is to improve financialreporting by providing entities with the opportunity to mitigate volatility in reported earnings caused bymeasuring related assets and liabilities differently without having to apply complex hedge accountingprovisions. Adoption of this interpretation is not expected to have a significant impact on the Bank’sconsolidated financial statements.Reclassifications—Certain reclassifications were made to the prior year’s presentation to conform to thecurrent year's presentation.SECURITIESThe Bank enters into purchases of securities under agreements to resell substantially identical securities.These agreements are classified as secured loans.The amounts advanced under these agreements are reflected as assets in the consolidated balance sheets.It is the Bank’s policy to take possession of securities purchased under agreements to resell. Agreementswith third parties specify the Bank’s rights to request additional collateral, based on its monitoring of thefair value of the underlying securities on a daily basis. The securities are delivered by appropriate entryinto the Bank’s account maintained at the Federal Reserve Bank or into a third-party custodian’s accountdesignated by the Bank under a written custodial agreement that explicitly recognizes the Bank’s interestin the securities.The securities purchased under agreements to resell were $50,000,000 for period ended December 31,2006 and 2005. Securities purchased under agreements to resell averaged approximately $71,424,658and $50,698,630 during the years ended December 31, 2006 and 2005, respectively. The maximumamount outstanding at any month-end during the years ended was $50,000,000 for both 2006 and 2005.20

The amortized cost, gross unrealized gains and losses and estimated fair value of securities are asfollows at December 31:2006Gross Gross EstimatedAmortized Unrealized Unrealized FairSecurities Held-to-Maturity Cost Gains Losses ValueU.S. government sponsoredenterprise debt securities $ 45,059,045 $ 53,697 $ (480,575) $ 44,632,167Collateralized mortgage obligations 19,459,728 - (798,811) 18,660,917Municipalities 10,206,405 - (173,140) 10,033,265Total $ 74,725,178 $ 53,697 $ (1,452,526) $ 73,326,349Securities Available-for-SaleU.S. government sponsoredenterprise debt securities $ 252,463,968 $ 30,854 $ (2,482,690) $ 250,012,132Mortgage-backed securities 6,930,646 15,387 (115,748) 6,830,285Collateralized mortgage obligations 80,381,412 5,520 (599,104) 79,787,828Equity securities 89,331 130,031 - 219,362Total $ 339,865,357 $ 181,792 $ (3,197,542) $ 336,849,6072005Gross Gross EstimatedAmortized Unrealized Unrealized FairSecurities Held-to-Maturity Cost Gains Losses ValueU.S. government sponsoredenterprise debt securities $ 53,711,444 $ - $ (1,200,306) $ 52,511,138Collateralized mortgage obligations 24,966,363 - (979,197) 23,987,166Municipalities 10,226,837 - (205,428) 10,021,409Total $ 88,904,644 $ - $ (2,384,931) $ 86,519,713Securities Available-for-SaleU.S. government sponsoredenterprise debt securities $ 239,751,144 $ 7,119 $ (4,164,316) $ 235,593,947Mortgage-backed securities 8,335,837 36,300 (106,583) 8,265,554Collateralized mortgage obligations 71,368,441 299 (413,812) 70,954,928Equity securities 89,331 39,000 - 128,331Total $ 319,544,753 $ 82,718 $ (4,684,711) $ 314,942,76021

The maturity distribution of securities held-to-maturity and available-for-sale is as follows as ofDecember 31:Securities Held-to-MaturityAmortizedCostEstimatedFair ValueDue after one year through five years $ 59,920,531 $ 58,738,354Due after five years through ten years 11,274,466 11,087,697Due after ten years 3,530,181 3,500,298Total $ 74,725,178 $ 73,326,349Securities Available-for-SaleDue in one year or less $ 233,673,016 $ 231,513,039Due after one year through five years 89,537,656 88,764,465Due after five years through ten years 14,755,893 14,554,029Due after ten years 1,809,461 1,798,712Equity securities 89,331 219,362Total $ 339,865,357 $ 336,849,6072006Securities Held-to-MaturityAmortizedCostEstimatedFair ValueDue in one year or less $ 4,935,981 $ 4,835,513Due after one year through five years 59,382,210 57,600,697Due after five years through ten years 17,620,210 17,260,534Due after ten years 6,966,243 6,822,969Total $ 88,904,644 $ 86,519,713Securities Available-for-SaleDue in one year or less $ 91,121,042 $ 90,914,735Due after one year through five years 204,384,070 200,073,996Due after five years through ten years 23,950,310 23,825,698Equity securities 89,331 128,331Total $ 319,544,753 $ 314,942,7602005During the year ended December 31, 2006, the Bank did not sell any securities. In 2005, the Bank soldapproximately $79,970,000 of securities from the available-for-sale portfolio, resulting in gross realizedlosses of approximately $2,194,000.22

The following table shows the Bank’s investments’ gross unrealized losses and fair value, aggregatedby investment category and length of time that individual securities have been in a continuous unrealizedloss position, at December 31:2006Less than 12 months 12 months or longer TotalGross Gross GrossDescription of Unrealized Unrealized UnrealizedSecurities Fair Value Losses Fair Value Losses Fair Value LossesSecuritiesHeld-to-MaturityU.S governmentsponsored enterprisedebt securities $ 3,389,058 $ (13,761) $ 36,247,934 $ (466,814) $ 39,636,992 $ (480,575)Collateralized mortgageobligations - - 18,660,917 (798,811) 18,660,917 (798,811)Municipalities - - 10,033,265 (173,140) 10,033,265 (173,140)Total $ 3,389,058 $ (13,761) $ 64,942,116 $ (1,438,765) $ 68,331,174 $ (1,452,526)SecuritiesAvailable-for-SaleU.S. governmentsponsored enterprisedebt securities $ 82,404,825 $ (83,911) $ 137,557,800 $ (2,398,779) $ 219,962,625 $ (2,482,690)Mortgage-backed securities - - 5,841,680 (115,748) 5,841,680 (115,748)Collateralized mortgageobligations 12,729,443 (37) 48,838,766 (599,067) 61,568,209 (599,104)Total $ 95,134,268 $ (83,948) $ 192,238,246 $ (3,113,594) $ 287,372,514 $ (3,197,542)SecuritiesHeld-to-Maturity2005Less than 12 months 12 months or longer TotalGross Gross GrossUnrealized Unrealized UnrealizedFair Value Losses Fair Value Losses Fair Value LossesU.S. government-sponsoredenterprisedebt securities $ - $ - $ 52,511,138 $ (1,200,306) $ 52,511,138 $ (1,200,306)Collateralized mortgageobligations - - 23,987,166 (979,197) 23,987,166 (979,197)Municipalities 10,021,409 (205,428) - - 10,021,409 (205,428)Total $ 10,021,409 $ (205,428) $ 76,498,304 $ (2,179,503) $ 86,519,713 $ (2,384,931)SecuritiesAvailable-for-SaleU.S. government-sponsoredenterprisedebt securities $ 106,112,156 $ (3,908,331) $ 109,477,789 $ (255,985) $ 215,589,945 $ (4,164,316)Mortgage-backed securities - - 6,719,015 (106,583) 6,719,015 (106,583)Collateralized mortgageobligations 56,334,180 (413,694) 103,964 (118) 56,438,144 (413,812)Total $ 162,446,336 $ (4,322,025) $ 116,300,768 $ (362,686) $ 278,747,104 $ (4,684,711)23

The unrealized loss positions on the obligations of U.S. government sponsored enterprises, collateralizedmortgage obligations, and municipalities are a function of the volatility with interest rates in 2006 and2005. These securities are rated AAA by Standard and Poors with one-to-two year duration, andredeemable at maturity or when called at par. As of December 31, 2006 and 2005, the Bank did notrecognize any other than temporary impairment.Securities with carrying amounts of approximately $181,527,000 and $154,181,000 were pledged tosecure public deposits and for other purposes as required or permitted by law at December 31, 2006 and2005, respectively.3. LOANS AND ALLOWANCE FOR LOAN LOSSESLoans consist of the following at December 31:2006 2005Real estate $ 772,742,335 $ 759,629,239Commercial 292,002,083 238,927,604Construction 143,134,907 134,614,733SBA 14,187,797 18,125,329Installment and credit card 406,818 389,2591,222,473,940 1,151,686,164Less:Allowance for loan losses 13,280,855 11,937,392Deferred loan fees—net 2,161,719 2,572,622Premiums—net 145,043 260,139Loans—net $ 1,206,886,323 $ 1,136,916,011Loans to borrowers are collateralized by a variety of properties, primarily located in California. As ofDecember 31, 2006 and 2005, these loan balances consisted of commercial real estate of approximately$548,769,000 and $509,637,000, multi-residential property of $67,283,000 and $80,564,000, and realestate under construction of $143,135,000 and $134,615,000. The ability of the Bank’s customers tohonor their loan agreements is dependent, in part, upon the health of the real estate market, as well as thegeneral economy of the Bank’s market area. Should the real estate market experience an overall declinein property values, the ability of borrowers to make timely scheduled principal and interest payments onthe Bank’s loans may be adversely affected and, in turn, may result in increased delinquencies andforeclosures. In the event of foreclosures under such conditions, the value of the property acquired maybe less than the appraised value when the loan was originated and may, in some instances, result ininsufficient proceeds upon disposition to recover the Bank’s investment in the foreclosed property.Furthermore, although most of the Bank’s trade finance activities are related to trade with Asia, all of theBank’s loans are made to companies domiciled in the United States of America. The Bank hashistorically made three types of credit extensions involving direct exposure to the Asia Pacific region(Taiwan, China, Vietnam) economy: commercial loans to U.S. affiliates/subsidiaries/branches ofcompanies headquartered in Asia Pacific region, acceptances with Asia Pacific banks, and standbyletters of credit issued by Asia Pacific banks. In certain instances, standby letters of credit issued by AsiaPacific region banks support the loans made to the U.S. affiliates or branches of Asia Pacific regioncompanies, to which the Bank has extended loans. The percentages to other individual Pacific Rimcountries are relatively small in relation to the loans involving country risk. As a result, with theexception of Asia Pacific region, the Bank does not believe it has significant indirect country riskexposure to any other Pacific Rim countries.24

The following is an analysis of the activity in the allowance for loan losses for the years endedDecember 31, 2006 and 2005:Balance—January 1, 2005 $ 14,847,592Provision for loan losses (1,700,000)Loans charged off (3,281,306)Recoveries on loans previously charged off 1,878,060Net change in allowance on commitments to extent credit and letters of credit 193,046Balance—December 31, 2005 11,937,392Provision for loan losses 1,750,000Loans charged off (917,176)Recoveries on loans previously charged off 656,474Net change in allowance on commitments to extent credit and letters of credit (145,835)Balance—December 31, 2006 $ 13,280,855The allowance of losses on commitments to extend credit and letters of credit is primarily related toundisbursed funds on lines of credit. The Bank evaluates credit risk associated with the loan portfolio atthe same time it evaluates credit risk associated with the commitments to extend credit and letter ofcredit. However, the allowances necessary for the commitments is reported separately in other liabilitiesin the accompanying consolidated balance sheets and not as part of the allowance for loan losses, aspresented above. The reserve for losses on commitments to extend credit and letter of credit was$1,677,282 and $1,531,446 at December 31, 2006 and 2005, respectively.At December 31, 2006 and 2005, troubled debt restructured loans were approximately $1,579,000 and$990,000, respectively, of which approximately $1,579,000 and $197,000, respectively, were onnonaccrual status. Interest income on these loans recorded for the same period was approximately$20,400 and $2,500 for the years ended December 31, 2006 and 2005, respectively. The Bank does nothave any commitments to lend additional funds to these borrowers.25

The following table presents a breakdown of the impaired loans and their related impairment allowance.SpecificRecorded ValuationDecember 31, 2006 Investment AllowanceImpaired loans:Nonaccrual loans, including restructured loans of $1,578,664 $ 11,965,935Restructured loans—accruing -Totalimpairedloans $ 11,965,935Loans with impairment allowance $ 11,965,935 $ 1,552,806Loans without impairment allowance - -Total $ 11,965,935 $ 1,552,806Average impaired loans for the year $ 10,752,351Income recognized on impaired loans for the year $ 740,153Income recognized on impaired loans on a cash basis for the year $ 739,858SpecificRecorded ValuationDecember 31, 2005 Investment AllowanceImpaired loans:Nonaccrual loans, including restructured loans of $197,034 $ 8,537,325Restructured loans—accruing 793,232Totalimpairedloans $ 9,330,557Loans with impairment allowance $ 9,330,557 $ 960,106Loans without impairment allowance - -Total $ 9,330,557 $ 960,106Average impaired loans for the year $ 15,135,914Income recognized on impaired loans for the year $ 1,531,364Income recognized on impaired loans on a cash basis for the year $ 1,530,99126

4. PREMISES AND EQUIPMENTPremises and equipment are summarized as follows at December 31:2006 2005Land and building $ 4,713,696 $ 4,713,696Leasehold improvements 9,782,356 9,208,004Furniture and fixtures 3,271,466 3,096,907Equipment 8,224,698 7,902,299Total 25,992,216 24,920,906Less accumulated depreciation and amortization 16,605,617 14,372,189Premises and equipment—net $ 9,386,599 $ 10,548,717Depreciation expense for the years ended December 31, 2006 and 2005 amounted to approximately$2,282,000 and $2,416,000, respectively.On June 14, 2005 the Bank sold its Newport Beach property subject to a 4 year lease back for$8,750,000. The Bank recognized a one-time gain of $5,299,716 and a deferred gain of $1,360,335.5. OTHER REAL ESTATE OWNEDThe following is an analysis of the activity in OREO for the years ended December 31:Balance—January 1, 2005 $ -Additions to OREO 4,339,203Sales (979,017)Balance—December 31, 2005 $ 3,360,186Additions to OREO $ 600,000OREO sold (3,960,186)Balance—December 31, 2006 $ -There was no allowance on other real estate owned for the years ended December 31, 2006 and 2005.The following table presents the income and expense components of other real estate owned and relatedcollection expenses for the years ended December 31:2006 2005Gain on sale $ 637,280 $ 51,217Operating reimbursement/expense, net 58,217 53,000OREO income —net $ 695,497 $ 104,21727

6. GOODWILL INTANGIBLE ASSETSOn August 15, 1997, the Bank was acquired by SinoPac Bancorp, which is a wholly owned subsidiaryof Bank SinoPac of Taiwan. The acquisition was accounted for using the purchase method of accountingwith the purchase price “pushed down” to the Bank. In conjunction with this acquisition, the Bankrecorded approximately $37,606,000 of goodwill and $6,958,000 of core deposit intangible. Both thegoodwill and the core deposit intangible were to be amortized, on a straight-line basis, over a period of15 years. In January 2002 the Bank adopted SFAS No. 142, Goodwill and Other Intangible Assets, and,as a result, no longer amortizes goodwill but tests it at least annually for impairment. The Bank willcontinue to amortize the core deposit intangible over an estimated useful life of 15 years.Following is a summary of the Bank’s goodwill and intangible assets as of December 31:2006 2005Gross Carrying Accumulated Gross Carrying AccumulatedAmount Amortization Amount AmortizationGoodwill $ 37,605,540 $ (11,855,659) $ 37,605,540 $ (11,855,659)Core deposit intangibles 6,958,000 (4,348,750) 6,958,000 (3,884,884)Total $ 44,563,540 $ (16,204,409) $ 44,563,540 $ (15,740,543)For the years ended December 31, 2006 and 2005, the Bank recorded amortization expense ofapproximately $464,000 for both years, related to the core deposit intangibles. The estimatedamortization of the December 31, 2006 balance for the succeeding five fiscal years will beapproximately $464,000 per year.There were no changes in the carrying value of goodwill during the year ended December 31, 2006. TheBank tested goodwill for impairment in January 2006 and 2007 and determined that there was noimpairment.7. OTHER ASSETSThe Bank purchased $30 million of bank owned life insurance policies on its executives. The policiesare established for the benefit of the Bank as the Bank paid the single-premium life insurance andreceives non-interest income to offset the cost of employee benefit expenses. The cash surrender valuewas approximately $32,950,000 and $31,560,000 as of December 31, 2006 and 2005, respectively.In 2005, the Bank carried a single premium life insurance policy on a former key officer of the Bank asthe beneficiary. The insurance policy was purchased with a single premium of $1,000,000, which wasredeemed in 2005 due to the death of the individual and the Bank recognized an additional benefit of$463,000.28

8. DEPOSITSAt December 31, 2006, the scheduled maturities of time deposits are as follows (in thousands):2007 $ 806,1962008 31,5982009 3,4962010 31Total $ 841,3219. OTHER BORROWED FUNDSAt December 31, 2006, the scheduled maturities and interest rate of subordinated debt are as follows:Issuance Date Maturity Date Amount RateJune 26, 2003 June 26, 2013 $ 10,000,000 3 month LIBOR plus 2.85% spreadSeptember 17, 2003 September 17, 2013 5,000,000 3 month LIBOR plus 2.80% spreadOn June 26, 2003 and September 17, 2003, the Bank issued two 10-year subordinated debentures in theamounts of $10,000,000 and $5,000,000, payable in full on June 26, 2013 and September 17, 2013,respectively. The interest rates on such debentures are re-priced on a quarterly basis with an averageinterest rate of 8.22% and 6.43% for the years ended December 31, 2006 and 2005, respectively. Theprincipal balance is classified as long-term borrowing.Federal Home Loan Bank advances are secured by certain residential, multi-family and commercial realestate loans. As of December 31, 2006, there were $125,000,000 outstanding advances with $20 millionto mature in 2007 and $105 million to mature in 2010, with weighted interest rate of 3.94% and 4.38%,respectively.10. FAR EAST CAPITAL CORPORATIONThe Corporation had one class of cumulative preferred stock with 1,000,000 shares authorized and100,000 shares outstanding with a par value of $10 per share, reflected as minority interest in theaccompanying 2005 consolidated balance sheet. The preferred shares were non-voting and were heldby the SBIC. In 2006, the Corporation redeemed all the preferred stock and paid off all the cumulativepreferred stock dividend of approximately $578,000.29

11. INCOME TAXESCurrent and deferred income tax expense (benefit) is summarized as follows for the years endedDecember 31:2006 2005Federal:Current $ 9,910,551 $ 9,297,358Deferred (2,226,251) (394,981)7,684,300 8,902,377State:Current 475,323 2,672,348Deferred (901,484) (36,264)(426,161) 2,636,084Net provision for income taxes $ 7,258,139 $ 11,538,461The provision for income taxes varies from the federal statutory tax rate for the following reasons for theyears ended December 31:2006 2005Amount Rate Amount RateFederal income tax based on statutory rate $ 8,935,553 35.00 % $ 10,265,667 35.00 %State franchise tax—net of federal income tax benefit 1,799,876 7.05 1,713,455 5.84Other (3,477,290) (13.62) (440,661) (1.50)Total provision for income taxes $ 7,258,139 28.43 % $ 11,538,461 39.34 %30

The components of the net deferred tax liabilities (assets) are as follows for the years endedDecember 31:2006 2005Federal:Deferred tax liabilities:Deferred loan fees $ 3,786,543 $ 4,039,103State deferred tax 474,196 158,677Acquisition premium excluding goodwill 913,237 1,075,590Other 508,431 332,998Gross deferred tax liabilities 5,682,407 5,606,368Deferred tax assets:State franchise tax (771,112) (861,503)Depreciation and amortization (1,989,245) (1,067,039)Provision for loan losses (6,005,743) (4,714,093)Unrealized losses (941,095) (1,436,097)Other (1,416,953) (1,238,129)Gross deferred tax assets (11,124,148) (9,316,861)Net deferred federal tax assets $ (5,441,741) $ (3,710,493)State:Deferred tax liabilities:Deferred loan fees 1,172,745 1,250,968Acquisition premium excluding goodwill 282,842 333,126Other 38,677 103,134Gross deferred tax liabilities 1,494,264 1,687,228Deferred tax assets:Depreciation (620,792) (363,994)Provision for loan losses (1,860,064) (1,460,022)Unrealized losses (326,908) (498,856)Other (429,866) (378,185)Gross deferred tax assets (3,237,630) (2,701,057)Net deferred state tax assets (1,743,366) (1,013,829)Total net deferred tax assets $ (7,185,107) $ (4,724,322)31

12. 401(k) PLANThe Bank has a 401(k) plan in which all employees of the Bank may elect to enroll at the beginning ofeach month provided that they have been employed for at least three months prior to the enrollment date.Employees may contribute up to 15 percent of their annual salary with the Bank matching up to 3percent of the employee’s annual salary. The Bank contributed approximately $372,000 and $389,000for the years ended December 31, 2006 and 2005, respectively.13. COMMITMENTS AND CONTINGENCIESLeases—The Bank leases commercial office property and equipment under operating leases with termsthrough 2011, with renewal options through 2014. Future commitments on leases with a remaining termof one year or more are as follows:Year EndingDecember 312007 $ 3,225,5602008 2,981,9902009 2,543,1312010 1,252,1032011 724,286Thereafter 23,533Total $ 10,750,603Total rental expense was approximately $3,234,000 and $2,924,000 for the years ended December 31,2006 and 2005, respectively.Credit-Related Financial Instruments—The Bank is a party to credit related financial instruments withoff-balance-sheet risk in the normal course of business to meet the financing needs of its customers.These financial instruments include commitments to extend credit, standby letters of credit andcommercial letters of credit. Such commitments involve, to varying degrees, elements of credit andinterest rate risk in excess of the amount recognized in the consolidated balance sheets.The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. TheBank follows the same credit policies in making commitments as it does for on-balance-sheetinstruments.The following financial instruments were outstanding whose contract amounts represent credit risk atDecember 31, 2006:Commitments to grant loans $ 348,032,000Unfunded commitments under lines of credit 109,728,000Commercial and standby letters of credit 30,982,000$488,742,000Commitments to extend credit are agreements to lend to a customer as long as there is no violation ofany condition established in the contract. Commitments generally have fixed expiration dates or othertermination clauses and may require payment of a fee. The commitments for equity lines of credit may32

expire without being drawn upon. Therefore, the total commitment amounts do not necessarily representfuture cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, isbased on management’s credit evaluation of the customer.Unfunded commitments under commercial lines-of-credit, revolving credit lines and overdraft protectionagreements are commitments for possible future extensions of credit to existing customers. These linesof-creditare uncollateralized and usually do not contain a specified maturity date and may not be drawnupon to the total extent to which the Bank is committed.Commercial and standby letters-of-credit are conditional commitments issued by the Bank to guaranteethe performance of a customer to a third party. Those letters-of-credit are primarily issued to supportpublic and private borrowing arrangements. Essentially all letters of credit issued have expiration dateswithin one year. The credit risk involved in issuing letters-of-credit is essentially the same as thatinvolved in extending loan facilities to customers. The Bank generally holds collateral supporting thosecommitments if deemed necessary.The reserve for losses on commitments and off balance sheet items to extend credit and letters of creditis primarily related to undisbursed funds on lines of credit. The Bank’s exposure to credit loss in theevent of non-performance by the customer is represented by the contractual amount of thoseinstruments. Consistent credit policies are used by the Bank for both on and off-balance sheet items. TheBank evaluates credit risk associated with the loan portfolio at the same time as it evaluates credit riskassociated with commitments to extend credit and letters of credits. However, the reserve necessary forthe commitments is reported separately in other liabilities in the accompanying consolidated balancesheets, and not as part of the allowance for loan losses. The reserve for losses was $1,677,000 and$1,531,000 at December 31, 2006 and 2005, respectively.Litigation—The Bank has been named in legal actions arising in the ordinary course of business.Management is of the opinion that the ultimate liability, if any, from these actions will not have amaterial adverse effect on its financial condition or results of operations.REGULATORY CAPITAL REQUIREMENTSThe Bank is subject to various regulatory capital requirements administered by the federal bankingagencies. Failure to meet minimum capital requirements can initiate certain mandatory and possiblyadditional discretionary actions by regulators that, if undertaken, could have a direct effect on the Bank’sfinancial statements. Under capital adequacy guidelines and the regulatory framework for promptcorrective action, the Bank must meet specific capital guidelines that involve quantitative measures ofthe Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatoryaccounting practices. The Bank’s capital amounts and classification are also subject to qualitativejudgments by the regulators about components, risk weightings and other factors.The quantitative measures established by regulation to ensure capital adequacy requires the Bank tomaintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as definedin the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to averageassets (as defined). Management believes, as of December 31, 2006 and 2005, that the Bank meets allcapital adequacy requirements to which it is subject.As of December 31, 2006 and 2005, the most recent notification from the Bank’s primary regulator, theOffice of the Comptroller of the Currency, categorized the Bank as well capitalized under the regulatoryframework for prompt corrective action. To be categorized as well capitalized the Bank must maintainminimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are33

no conditions or events since that notification which management believes have changed the Bank’scategory.The Bank’s actual capital amounts and ratios as of December 31, 2006 are presented in the table below:Minimum To Be WellCapitalized underMinimum CapitalPrompt CorrectiveActualRequirementAction ProvisionsAmount Ratio Amount Ratio Amount RatioTotal capital (to risk-weighted assets) $ 196,934,000 13.04 % $ 120,777,000 > 8.00 % $ 150,972,000 > 10.00 %Tier I capital (to risk-weighted assets) 166,917,000 11.06 60,389,000 > 4.00 90,583,000 > 6.00Tier I capital (to average assets) 166,938,000 9.17 72,791,000 > 4.00 90,989,000 > 5.00The Bank’s actual capital amounts and ratios as of December 31, 2005 are presented in the table below:Minimum To Be WellCapitalized underMinimum CapitalPrompt CorrectiveActual Requirement Action ProvisionsAmount Ratio Amount Ratio Amount RatioTotal capital (to risk-weighted assets) $ 178,893,000 12.79 % $ 111,880,000 > 8.00 % $ 139,850,000 > 10.00 %Tier I capital (to risk-weighted assets) 150,407,000 10.75 55,940,000 > 4.00 83,910,000 > 6.00Tier I capital (to average assets) 150,406,000 8.47 70,997,000 > 4.00 88,746,000 > 5.00In September 2006, the Bank’s primary federal regulator, the Comptroller of the Currency (OCC), hasapproved the lifting of the cease and desist order issued to FENB in June 2005. The order was designedto strengthen the Bank’s internal controls over its BSA/AML compliance program and the OCC did notfind any evidence that money laundering or terrorist finances is occurring at FENB.FAIR VALUE OF FINANCIAL INSTRUMENTSThe fair value of a financial instrument is the current amount that would be exchanged between willingparties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices.However, in many instances, there are no quoted market prices for the Bank’s various financialinstruments. In cases where quoted market prices are not available, fair values are based on estimatesusing present value or other valuation techniques. Those techniques are significantly affected by theassumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fairvalue estimates may not be realized in an immediate settlement of the instrument. SFAS No. 107,Disclosure about Fair Value of Financial Instruments excludes certain financial instruments and allnonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair valueamounts presented may not necessarily represent the underlying fair value of the Bank.34

The estimated fair value amounts below have been determined by the Bank using available market dataand appropriate valuation methodologies. However, considerable judgment is required to interpretmarket data to develop the estimates of fair value. Accordingly, the estimates presented herein are notnecessarily indicative of the amounts the Bank could realize in a current market exchange. The use ofdifferent market assumptions and/or estimation methodologies may have a material effect on theestimated fair value amounts.December 31, 2006CarryingEstimatedAmountFair ValueAssets:Cash and cash equivalents $ 117,020,321 $ 117,020,321Securities—available-for-sale 336,849,607 336,849,607Securities—held-to-maturity 74,725,178 73,326,349Loans receivable—net 1,206,886,323 1,204,605,664FHLB stock 9,929,300 9,929,300FRB stock 3,385,200 3,385,200Accrued interest receivable 9,227,711 9,227,711Derivatives 30,347 30,347Liabilities:Non-interest bearing $ 161,087,398 $ 161,087,398Interest bearing 338,875,269 320,510,755Time certificates of deposit 841,320,834 843,199,259Accrued interest payable 12,450,710 12,450,710Subordinated debt 15,000,000 15,021,572FHLB term advance 125,000,000 120,955,713Federal funds purchased and securities sold 140,282,090 140,283,882December 31, 2005CarryingEstimatedAssets:AmountFair ValueCash and cash equivalents $ 130,396,266 $ 130,396,266Securities—available-for-sale 314,942,760 314,942,760Securities—held-to-maturity 88,904,644 86,519,713Loans receivable—net 1,136,916,011 1,135,012,052FHLB stock 9,635,000 9,635,000FRB stock 3,386,800 3,386,800Accrued interest receivable 8,261,241 8,261,241Derivatives 2,316 2,316Liabilities:Non-interest bearing $ 180,876,373 $ 180,876,373Interest bearing 400,265,104 400,265,104Time certificates of deposit 750,982,230 751,655,372Accrued interest payable 7,466,490 7,466,490Subordinated debt 15,000,000 15,017,810Federal funds purchased and securities sold 125,000,000 125,515,406under agreements to repurchase 107,138,851 107,139,29135

The following methods and assumptions were used by the Bank in estimating fair value disclosures forfinancial instruments:Cash and Cash Equivalents—The carrying amounts of cash and short-term instruments approximatefair values.Securities—Fair values for securities, excluding Federal Home Loan Bank (“FHLB”) stock andFederal Reserve Bank (“FRB”) stock, are based on quoted market prices. The carrying value of FHLBstock and FRB stock approximates fair value based on the redemption provisions of the FHLB andFRB.Loans Receivable—The fair value of loans is estimated based on the present value of the expectedfuture cash flows. The discount rate used to estimate the fair value of loans uses the risk-adjustedspreads to the U.S. Treasury curve to approximate current entry-value interest rates applicable to eachcategory of loans. Specific allowances are determined on an individual basis for classified loans, takinginto account the collateral of the loan and the continued ability of the customer to repay. The carryingamount and the estimated fair value of loans are net of allowance for loan losses and deferred loan fees.Deposit Liabilities—The fair values disclosed for non-interest bearing deposits (demand deposits) andinterest bearing deposits (checking, passbook savings and certain types of money market accounts)are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carryingamounts). The estimated fair value of time deposits is based on the present value of future cash flowsusing the current rate paid by the Bank on time deposits with similar remaining maturities.Short-Term Borrowings—The carrying amounts of federal funds purchased, borrowings underrepurchase agreements and other short-term borrowings maturing within 90 days approximate theirfair values. Fair values of other short-term borrowings are estimated using discounted cash flowanalyses based on the Bank’s current incremental borrowing rates for similar types of borrowingarrangements.Subordinated Debt—The estimated fair value has been determined by the Bank using incrementalborrowing rates for similar types of borrowing arrangements.FHLB Advances—The fair values of FHLB advances are estimated based on the discounted value ofcontractual cash flows, using the 1 month LIBOR rate (the index used in the original purchase).Derivatives—Fair values for derivatives financial instruments are based upon quoted market prices,except in the case of certain options and swaps where pricing models are used.Off-Balance-Sheet Instruments—Fair values for off-balance sheet, credit related financial instrumentsare based on fees currently charged to enter into similar agreements, taking into account the remainingterms of the agreement and the counterparties’ credit standing. The fair values of these instruments arenot material as of December 31, 2006 and 2005.Accrued Interest—The carrying amounts of accrued interest approximate fair value.DERIVATIVESDerivative Instruments Held for Customer Accommodation—The Bank utilizes various derivativeinstruments to accommodate customer needs. These transactions involve both credit and market risks.The notional amounts are amounts on which calculations and payments are based. Derivativeinstruments are standardized contracts negotiated privately with a counterparty (“customer” or36

“Bank SinoPac”). Specific agreement terms include underlying instrument, amount, exercise price andmaturity.Foreign exchange forward contracts and non-deliverable forward (NDF) contracts are recorded at thecontracted forward rates. Gains or losses arising from the differences between the contracted forwardrate and spot rates upon settlement are credited or charged to current income. For contracts outstandingas of the balance sheet date, the gains or losses arising from the differences between the contractedforward rate and the forward rates available for the remaining maturities of the contracts are credited orcharged to current income. Receivables arising from forward exchange contracts are offset againstrelated payables as of the balance sheet dates.Options bought and/or held and options written are recorded as assets and liabilities when thetransactions occur. These instruments are marked to market as of the balance sheet dates. The carryingvalues of the instruments, which are recorded either as assets or liabilities, are charged to income whenthey are not exercised. Gains or losses on the exercise of options are also included in income.The contract amounts (or notional amounts), credit risk and market values of outstanding contracts areas follows at December 31:2006 2005ContractContract(Notional) Credit Fair (Notional) Credit FairFinancial Instruments Amount Risk Value Amount Risk ValueFor the purpose of accommodatingcustomers' needs or managingtheir exposure:Forwards as seller 102,996 3,090 1,093 593,790 31,783 2,264Interest rate swap - - - 2,000,000 200,000 52Collateral Requirements—To reduce credit risk related to the use of both derivatives and credit-relatedfinancial instruments, the Bank might deem it necessary to obtain collateral. The amount and nature ofthe collateral obtained are based on the Bank’s credit evaluation of the customer. Collateral held variesbut may include cash, securities or accounts receivable.RELATED PARTY TRANSACTIONSThe Bank periodically buys and sells individual loans from and to Bank SinoPac, its parent.Management believes the terms are comparable to terms with other banks. The Bank has intercompanybalances for occasional transactions with its various subsidiaries, which are not material.In the ordinary course of business, the Bank has granted loans to principal officers, directors andemployees amounting to approximately $308,000 at December 31, 2006 and approximately $1,008,000at December 31, 2005. All such loans were made under terms, which are consistent with the Bank’snormal lending policies.FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TOREPURCHASESecurities sold under agreements to repurchase, which are classified as secured borrowings, generallymature within one month from the transaction date. Securities sold under agreements to repurchase arereflected at the amount of cash received in connection with the transaction. The Bank may be required toprovide additional collateral based on the fair value of the underlying securities.37

As of December 31, 2006 and 2005, the Bank held approximately $101,282,000 and $50,139,000,respectively, in federal funds purchased and placements.As of December 31, 2006 and 2005, the Bank had securities sold with agreements to repurchase(“Repos”) of approximately $39,000,000 and $57,000,000, respectively. The average balance on theRepos for 2006 and 2005 was approximately $38,700,000 and $60,212,000, respectively, with aweighted interest rate of 4.76% and 2.68% for the years 2006 and 2005, respectively.******38

2001 2006$ 1,367,277,000 $ 1,812,805,000 32.6%909,503,000 1,351,594,000 48.6%5,704,162 18,272,012 220.3%32.6%48.6%220.3%1.812.002.0018.27201.751.7517.51.371.501.351.50151.251.2512.51.000.911.0010.75.757.55.70.50.505.0.25.252.52001 20062001 20062001 2006