2006 ANNUAL REPORT - Far East National Bank

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